♪ good morning. happy new year and welcome to "face the nation." for this first day of 2023, we want to look forward. offering the outlook ahead on the economy, foreign policy and the environment. taking advantage of at least one quiet sunday here in washington, before the new congress convenes later this week. we begin with a look at the domestic economic forecast and the chief economist for bank of america, michael gapen. he's here. happy new year to you and good

to have you in person. >> happy new year to you and thank you for having me on. >> a majority of voters polled by "the wall street journal" says the economy is going to look and feel worse in 2023. what is your forecast? >> i think that's probably true. i think we're in a situation where the risk of recession is high. may not be a deep and prolonged one, but we're in a situation where the economy has recovered very rapidly from covid, and it's come with a lot of inflation. and the federal reserve is trying to slow down the economy to bring inflation down. in the past, more often than not, that's coincided with some sort of recession in the u.s. economy and the u.s. labor market. it's not baked in. it's not for certain. we may be able to avoid it. but i would agree that the outlook by most people who sit in the position that i do think 2023 could be a difficult year for the u.s. >> so, we may be able to avoid recession. >> yes. >> or it could be mild. >> yes.

in this particular case, i think it doesn't have to be deep. it doesn't have to be prolonged. >> so, we're currently at an inflation rate at 7.1%. how long do we have to stomach higher prices? when does it feel better for the average american? >> the evidence suggests we're already past peak inflation. right now the trajectory is a more favorable one. it will probably take two to three years to get inflation back down to levels that we knew prior to the pandemic. in other words, low, stable, and something we didn't necessarily talk about because it wasn't forefront on our mind. but it may take another 18 to 24 months, maybe 36 months, to fully get us back to a situation where inflation doesn't seem to be as pressing as it is today. >> treasury secretary janet yellen was recently quoted in an op-ed she penned saying times can be tough, but americans are tougher. from the depths of the crisis we have bounced back and the

president's economic plan has bolstered the u.s. economy's resilience to today's challenges. so that's the political plan, the fiscal spending that congress can help them out with. do you think on that front we are on a steady path forward? >> the change we've seen from, say, the fiscal policy side of the u.s. economy is one where industrial policy is creeping back in again. we're trying to align our public sector interests with our private sector opportunities, the c.h.i.p. act and protecting the supply lines for chips is -- >> for semiconductors. >> that's right. for semiconductors, which is a hugely important process for electronics and autos globally. second, the inflation reduction act has many components of a clean energy policy. i think from a medium term perspective we're seeing greater alignment with political objectives, public sector objectives and private sector opportunity. we haven't done that in the united states for several

decades. >> in your newsletter bank of america's economists admit to being wrong about 2022. >> it happened. >> but so were the central banks, as you all point out. central banks are about six months late in hiking interest rates. the fed stands out like a sour thumb in largely dismissing the hottest labor market in many decades. so, if all the experts were wrong, why should the public trust that you're on the right path now? >> public policy plan for the worst, hoped for the best with the pandemic and planned for the worst. so, we didn't get the worst outcomes of the pandemic. some of those that were predicted early on, but we put a lot of fiscal policy support in, we kept monetary policy easy and interest rates low and we got too much of a good thing coming out. so, now we're just course correcting that. it may mean some pain for the economy in the short run, but if the fed is successful at bringing inflation down, that

means it's a very good yotoutlo for the u.s. economy. >> pain in the economy, let's say what that is. that's likely job cuts. >> likely job losses, yes. >> there are 6 million unemployed people right now with a jobless rate of 3.7%. that's a very strong jobs market. >> right. >> where do you think that jobless rate is going to go? how much pain are you preparing us for? >> part of the problem in the labor market right now is lack of available labor supply. we do think we're 3.5 to 4 million workers short of where we were prior to the pandemic because of things like lack of immigration and early retirements and so forth. so, this is why, if we want to, you know, reduce a hot labor market, cool it down a bit, it may involve some job losses. it could come in places like housing, the housing sector is retrenching. it could come in manufacturing, and it may come in professional and business services and finance and other sectors like that. >> for consumers, when the

federal reserve keeps rates higher for an extended period of time, they see the impact in their credit card statement or in the mortgage rate. so, if someone is looking at the housing market, wants to go out and buy a home right now, do they also have to wait the two to three years you referenced for inflation to come down before they feel like they can afford it? >> well, housing is under a tremendous affordability shock right now, as you -- home prices nationally are still up about 40% relative to pre-pandemic times. >> a bubble. >> well, i -- certainly -- >> powell said it was a bubble. >> i disagree with that. yes, i think -- home prices are starting to come back down. yes, it will take time to cool down the housing market and return affordability. is it two years? i don't know. but it could be 12 months, could be 24 months, yes. the housing market currently is in its own recession at present.

activity has really slowed down, particularly as mortgage rates rose. >> i want to end on a positive note, if we can. >> of course. >> i want to ask where you see sort of the best news in 2023. what makes you hopeful? >> what makes me hopeful is not just in the u.s. but globally, central banks have gotten the message on inflation. they reacted very quickly. inflation is now on a downward trend. we think that will continue. in the other area i would say is i'm still very optimistic about the long-run prospects for the u.s. economy. in that regard, what i mean is in a world where, you know, we're pulling back from globalization a bit and we're fracturing a bit, i think the positives of the u.s. actually become more positive. the u.s. becomes a better place for investment, returns to capital, and the dollar strength in the world system will likely be preserved. in some way i think our

positives become more accent rated in the current environment. we have a problem with inflation now. we likely will risk recession in 2023. beyond that i think it'sll a very positive oo u.s. >> all right. thank you so much for sharing your outlook. the global economy also saw some serious turbulence in 2022. we spoke with the managing director of the international monetary fund, kristalina georgieva as she wrapped up year-end business at the imf here in washington. >> china has been hub for cheap manufacturing for the world. we are all so dependent on it. right now it looks like covid cases are exploding as they start peeling back the zero covid restrictions. what will that mean for the global economy long and short term? >> in the short term, bad news. china has slowed down dramatically in 2022 because of this tight zero covid policy.

for the first time in 40 years, china's growth in 2022 is likely to be at or below global growth. looking into next year, for three, four, five, six months, the realizat -- relaxation of c. i was in china last week in a bubble in a city where there is zero covid, but that is not going to last once the chinese people start traveling. >> they don't have an effective vaccine right now. >> the vaccinations fall behind. they have not worked on anti-viral treatments and how that can be offered to people. and so they will go through this tough time. if they stay the course, over time, they would be able to catch up with the rest of the

world, but for the next couple of months, it would be tough for china and the impact on chinese growth would be negative. the impact on the region would be negative. the impact on global growth would be into a world that is poor and less secure because of a split in theat d m? >> the way we have operated, created excessive dependency in global chains. we were too focused on cost. how can we make products cheaper. and covid and then the senseless war russia started against ukraine have shown that this is not enough. we have to think of the security of supplies. and that means diversify the

sources of products that make the economy function well. lifting the level of cost. but we shouldn't go beyond. >> one of your imf researchers gave a pretty dire prediction. overall this year shocks will reopen economic wounds that were only partially healed post-pandemic. in short, the worst is yet to come. for many people, 2023 will feel like a recession. what do we need to brace for? >> for most of the world economy, this is going to be a tough year. tougher than the year we leave behind. why? because the three big economies -- u.s., eu, china -- are all slowing down simultaneously. the u.s. is most resilient. u.s. may avoid the recession. s remaining quite strong. this is, however, mixed blessing because if the labor market is

very strong, the fed may have to keep interest rates tighter for longer to bring inflation down. the eu, very severely hit by the war in ukraine. half of the european union will be in recession next year. china is going to slow down this year further. next year would be a tough year for china. and that translates into negative trends globally. when we look at the emerging markets in developing economies, there the picture is even direr. why? because on top of everything else, they get hit by high interest rates and by the appreciation of the dollar. for those economies that have high level of debt, this is a devastation.

>> i want to make sure i get to ukraine. president zelenskyy said they need $55 billion in foreign support next year. he expects $20 billion in the imf. is he going to get it? >> we're working on providing support for ukraine. we have assessed the needs of ukraine to range somewhere between $3 and $5 billion a month. what putting with destroying critical infrastructure in ukraine, this is horrific. and it means that in the next months, the country would be more on the high end of this range because it is put in an awful position to have to restore access to electricity, to heat, to water. ukraine has proven to be remarkably resilient. ukrainian economy's functioning, pensions are being paid. when there is bombardment,

restoration of energy, water, h heat, is done very quickly. we see revenues collected in ukraine in a very disciplined manner to support -- >> so the government is not going to collapse? >> the government is very well functioning under incredibly difficult circumstances. no, they're not going to collapse. and another thing that is so remarkable is, actually, the world has proven to be more resilient than we feared a year -- in the beginning of the year. we look at the response to the energy shock in europe. and europe is moving towards independence from russia decisively. yes, there will be a tough winter. maybe the next one would be even tougher. but freedom from dependence on russia is coming. >> how do you describe the state of u.s. economics and politics? >> the u.s. economy, remarkably

resilient. decision-making in u.s., because of the way the political set is at the moment, it is more difficult, but nonetheless, the u.s. has taken some very important steps that are helping the u.s. economy. but i do hope the u.s. is not going to slip into recession despite all these risks. we expect one-third of the world economy to be in recession. yes, as you said, even countries that are not in recession, it would feel like recession for countries of millions of people, but if that resilience of the labor market in the u.s. holds, the u.s. would help the world to get through a very different year. >> madam managing director, thank you for your time this morning. >> thank you. our fill interview with kristalina georgieva is available on our website and our

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about the ozempic® tri-zone. for a look at what's ahead on the foreign policy front, we're joined by former u.s. ambassador to russia, john sullivan, cbs news national security contributor, michael morel, former obama secretary, michelle, and trump national secure adviser general hr mcmaster who joins us from palo alto. it's good to have all of you here. you know, february 24, 2022 was a wake-up call for the world on the national security front. and, ambassador sullivan, i know you were posted to moscow at the time. european nations really didn't believe this was going to happen and then it did. what was that like? >> we knew it was going to happen. we had been predicting it for months. i had spoken to secretary blinken days before, on february 19th, he asked me what the mood

was. i said it felt like august 39, 1939. a world leade was going to launch an aggressive war on the european continent with unknown consequences. i thought, geez, i hope i haven't overstated this but we were very confident in our assessment of what he was going to do. the only question was when. >> what was so surreal as a reporter that all of our allies were doubting that vladimir putin would do this. >> yeah. i spent a lot of time talking to fellow ambassadors in moscow. the u.s. business community in moscow, they said, oh, you're chicken little. the sky is falling. absolutely not. this is irrational. putin would never do it. those same people on february 25th were texting me on their way to the airport, saying, good-bye, i was right. >> to date, sanctions have not stopped vladimir putin, and he is making clear that this war is going to continue. and that has global

ramifications. >> absolutely. i think in 2023 we're likely to gains but more missiles and drones where he targets electricity, water supplies, trying to break the will of the ukrainian people while also hoping europe has a very cold, dark winter and the energy prices, the risk of a recession, he's seeking to break the will of the ukrainians and of nato. i don't think he's going to be successful. i think in 2023 we're either going to see some kind of escalation on putin's side and/or possibly both some entry into some negotiations. if, in fact, the western and ukrainian will holds and putin realizes he can't actually achieve his objectives so he wants to put lipstick on a pig and declare victory somehow. >> general mcmaster, vladimir

putin just recently visited a military outpost for the first time with his generals. some have read that as an indication that he is doubling down. what do you see happening here? some ukrainian generals are forecasting a russian offensive could begin as soon as january. >> i think that's likely to be the case, margaret, but it's going to fail. i mean, putin is in denial. he's a man who obsessed, obsessed with restoring russia to national greatness and he fancied himself in expanding a russian empire. he's failed utterly but increasingly isolated. he's kind of a street thug. he's a bully and coward at the same time. i think now, you know, we have agency, margaret. we can stop meeting out of systems. we can give ukrainians what they need to protect their population and their infrastructure, and to sustain a counteroffensive to regain at least the territories taken since the renewed offensive on february 24th.

>> mike, i want to know what you think the red line is. from what i hear, it's crimea. that if the ukrainians tried to retake that area, that that might lead to the escalation that you were just referring to. what are your thoughts on that and the contact that the cia is having with russian intelligence? >> so, crimea is the most important piece for putin, right, in terms of what he's taken since 2014. but i'm not sure what that escalation could look like. i mean, he doesn't have a lot left from a military perspective. his troops, as a matter of fact, are digging into defensive positions in eastern ukraine right now. i'm not sure what he can do -- what he has left in his bag if the ukrainians were to go into crimea. and i would not dissuade them from doing that. >> director burns did have contact, he met face-to-face with his russian counterpart. i mean, the intelligence

channels are -- >> are open. >> -- are open. when you hear escalation, people fearmipun'learwh is the probabi being ?et of the communicatct his i russia he the orea onatse a nucle d hopehaent a message that our response would be significant and consequential. >> what is significant look like? >> i think what it looks like is u.s. forces attacking russian forces inside ukraine. i think that would force vladimir putin to think twice. >> i think the international dimension is important here. putin is pretty isolated, but you've had the prime minister of india come out and say, we don't want to see nuclear weapons used. you've had xi be clear. i think putin would find him

incredibly isolated not only from the west but from much of the international community. as well. >> ambassador sullivan, does putin care he's isolated? >> we made the same arguments to him to not invade ukraine, the consequences would be devastated. it turned out to be true. 141 countries condemned and deplored the invasion of ukraine by russia in the general assembly just after it occurred. he doesn't care. he has his plan. he is going to regather the russian lands. his response would be, peter the great didn't care what other leaders thought. peter the great did what he needed to do to gather the russian lands. this mythic, in some sense, in his own mind, russian empire that he wants to restore. he's messy. he doesn't care. >> well, that's terrifying. i want to take a very quick break because we have so many more national security issues to continue to talk about. we'll be back with more of our

panel. stay with us. >> you're watching "cbs

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>> phil. what time is it >> it is game time. danielle jones the upon giants. stole 3,000 yards. he run for 617. >> lawrenc