October 11, 2023

Quarterly Outlook: Too Early to Declare Victory Against Inflation

Is the Fed finished hiking rates for the year? Our quarterly outlook explores why the economy may not be cooling enough to slow inflation.

Main Takeaway

Inflation has started to cool off, and real economic growth continues to be stronger than most forecasters were predicting to start the year. As economic growth has remained strong, those predicting a recession this year were likely incorrect. However, there are clouds on the horizon, and the biggest longer-term threat to economic growth is the U.S. government’s mounting debt relative to GDP.

Top Risks

Consumer spending could come under pressure as pandemic-level savings are depleted and student loan payments restart. Since the Federal Reserve started tightening, auto loan and credit card delinquencies have increased, suggesting that some consumers may be overextended. Global inflation remains elevated, and with a trend toward deglobalization, slowdowns internationally have been more pronounced, especially in China. Oil prices have increased sharply over the past three months as OPEC+ countries have cut production.

Sources of Stability

Core inflation is trending down, and although it remains above the Fed’s 2% target, the U.S. economy will probably avoid a recession in 2023. The labor market is still strong with historically low unemployment. The Fed is likely near the end of its tightening cycle, and although markets still see the possibility of one additional rate hike, the economy continues to deliver strong results. The services sector continues to be expansionary. Fiscal policy remains accommodative despite the strong economy and restrictive rates.

Quarterly Outlook PDF Download

For our latest perspectives on markets and economic conditions, view our Quarterly Outlook for Q4 2023.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based upon third party data, which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article.

© 2023 Buckingham Wealth Partners. Buckingham Strategic Wealth, LLC, & Buckingham Strategic Partners, LLC (Collectively, Buckingham Wealth Partners). R-23-6304

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