Despite the recent rebound in energy prices, the downward trend in core inflation remains firmly intact. And with a growing number of indicators suggesting the labour market is not much tighter than it was in 2019, we expect wage and price inflation to continue falling. That trend should be reinforced if, as we suspect, the economy succumbs to a mild recession in the next few quarters. We continue to think the Fed’s next move will be a rate cut in early 2024, with rates then being cut more aggressively than markets are pricing in.
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