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Disinflationary forces still building

The lagged impact of the surge in interest rates over the past year is likely to push the US economy into a mild recession soon. That will only add to the disinflationary trend now underway and we expect core CPI inflation to fall to 2.5% by the end of 2023. We expect one more 25bp rate hike from the Fed in March, but as evidence of falling inflation becomes harder to ignore, we expect the Fed to then move to the side-lines and to be cutting rates again before the end of this year, with the fed funds target range falling back to 2.75%-3.00% by end-2024.