Key Insights
The global economy and financial markets have suffered a dreadful first half of the year, ravaged by a severe commodity shock, strict COVID-19 lockdowns in the world’s second largest economy, and one of the most aggressive Fed tightening cycles in recent history. The second half looks equally tough.
Consumers, already struggling with higher food and energy prices, are now being confronted by rapidly rising mortgage borrowing costs. Corporations, which have been able to pass on elevated input costs in recent months, are now facing an increasingly price-sensitive consumer, with negative implications for profit margins and earnings.
And now, in its bid to put inflation back in its cage, the Fed is no longer avoiding economic weakness, rather, it is targeting additional economic weakness. A U.S. recession in 2023 is now our baseline expectation.