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Saturday, 17 December 2022

Inflation set to drop away sharply in 2023

Inflation indicators

More hawkish rhetoric from the Fed this week, but interestingly markets aren't buying it, seeing the Federal Funds rate peaking well below 5 per cent per cent before falling sharply in the second half of 2023 and into 2024. 

Inflation spiked dramatically this year on the reopening and supply chain issues, but many of these contributing factors have gone massively into reverse gear now, in turn boding well for 2023.

30-year fixed mortgage rates in the US have eased back by 77 basis points from 7.08 per cent to 6.31 per cent over the past 5 weeks, signaling that the peak of the interest rates fear has now passed. 

US stocks as measured by the S&P 500 are down 20 per cent (well, -19.7 per cent) year-to-date as policy has tightened. 

The Aussie market is down only -6 per cent year-to-date, albeit a lot more if measured in USD terms.