We think that the economy is well-placed to handle higher interest rates and anticipate a period of weak economic growth rather than an outright recession: Rate-sensitive spending is a relatively small share of the economy right now, there are no egregious balance sheet vulnerabilities, and the extended period of shortages means that pent-up demand could keep the economy afloat for at least the next 12 months. Finally, a drop back in commodity prices should provide a modest boost to real incomes.
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