The first quarter of 2023 has presented a challenging economic environment for middle-market M&A. In late March, the U.S. Commerce Department’s third and final revision of the 4Q22 GDP was recorded at 2.6%, down from the initial estimate of 2.9% made in January. The GDP data shows a Federal Reserve (the “Fed”) induced deceleration in the 2022 U.S. economy as slowing consumer spending, declining business investment and lower exports affected the economy. It is widely expected that 2023 will show further economic deceleration with a growing potential for a recession later in the year.
The rapid post pandemic economic recovery, coupled with over stimulative government spending and several other global factors has caused persistently high inflation that is proving difficult to eradicate. The Fed’s continuing battle with inflation has led to a 475 basis point increase in interest rates, starting from near zero in March 2022 to the current 4.7% to 5.0% Fed Funds Rate today. This has been one of the most rapid periods of interest rates increases, which has had a few effects on the economy and the M&A market.
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