A portrait of Joe Davis, Vanguard’s chief global economist.
Markets and economy

Still beating back inflation

2 minute watch
July 05, 2023
Markets and economy
Market volatility
Interest rates


Joe Davis: Hello. The theme of our 2023 Vanguard economic and market outlook was "Beating Back Inflation." So how is the outlook proceeding halfway through the calendar year? Well, there are three core components of our economic and market outlook.

First, that inflation, although it would tend to recede over the course of 2023, would increasingly become stickier even if inflation rates were lower.

Secondly, because of that stickiness of inflation, which we see in the tightness in the labor market and the pressures on wages and some other select input costs, that we would have central banks around the world, broadly speaking, very unlikely to lower interest rates and, in fact, they would need to remain in restrictive territory well into 2024, well beyond the current calendar year.

And then thirdly, we would need to see some weakness in the labor market to ultimately bring inflation down from these generational high levels, down to that 2% or so target that most central banks around the world tend to focus on. And if anything, on that third dimension, the global economy has held up even better than our initial projections.

So, as we look into the rest of this calendar year 2023, our outlook remains broadly unchanged, that we will continue to see modest progress on the inflation front, in part because interest rates, tied by the central banks, will need to remain in the restrictive territory to ultimately bring inflation down. And with that, we will see some weakness, economic weakness, in the months ahead.

The one silver lining in all this is that you have parts of the financial markets, in particular the bond market, increasingly pricing in this reality of higher interest rates not only for this year but for the years to come, which should be a ballast for fixed income portfolios and, with that, broadly diversified global portfolios.

View our midyear outlook update

Most Viewed

Ready to invest? See how to open an account
Start with this step-by-step guide to opening a personal investment account, such as a general investing brokerage account or an IRA.
Backdoor Roth IRA What it is and how to set it up
If you are a high-income earner, a Backdoor Roth IRA may be a good retirement investment option for you. Learn what it is and how to set up this type of retirement plan.
Who owns Vanguard?
Who owns Vanguard? Learn why we're proud to be the only investor-owned investment management company and how we focus on putting investor needs first.
Are bonds a good investment right now?
Learn how high-quality bonds can play a valuable role in your portfolio in a high-yield environment.
Top 6 tips: Your year-end financial checklist
Discover our new international fund

All investing is subject to risk, including the possible loss of the money you invest.

Investments in bonds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss.

Investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.

© 2023 The Vanguard Group, Inc. All rights reserved.