Pain Relief

The year to date has brought a series of escalating worries: Will rising energy prices derail the recovery? Will inflation ever calm? Have we entered a recession? While we can address each of those questions on their merits, it was easy to feel overcome by a pervasive sense of fear.

As summer concludes, some of that fearful sentiment is dissipating. Many inflationary drivers are cooling, inventories are recovering, and risk assets are appreciating. A soft landing (lower inflation, steady growth, and minimal job losses) is still possible. However, we see no reason to expect a boom; the recovery is in a delicate position, and our outlook is for low but positive growth in the year to come.

Key Economic Indicators

Influences on the Forecast

  • The consumer price index (CPI) for July offered an encouraging signal, as headline inflation was flat month over month, bringing the year over year measure down to 8.5%. As hoped, lower energy costs led the decline. Prices also fell in some sectors that had been especially hot throughout the year, including airfares and used vehicles. However, inflation will remain top of mind: rent has increased 6.3% over the past year, and groceries by 13.1%. One favorable report will not be sufficient to move the Fed off its path of rapid interest rate increases.