Earlier from Goldman Sachs, jacking their Fed funds forecast higher:

More, this time on the economy ahead:

The US should narrowly avoid recession as core PCE inflation slows from 5% now to 3% in late 2023 with a 0.5pp rise in the unemployment rate.

To keep growth below potential amidst stronger real income growth, we now see the Fed hiking another 125bp to a peak of 5-5.25%. We don't expect cuts in 2023.

How can core inflation fall so much with such a small employment hit? The reason, we think, is that this cycle is different from prior high-inflation periods.

  • First, post-pandemic labor market overheating showed up not in excessive employment but in unprecedented job openings, which are much less painful to unwind.
  • Second, the disinflationary impact of the recent normalization in supply chains and rental housing markets still has a long way to go. And third, long-term inflation expectations remain well-anchored.
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