August 5, 2022

GDP growth contracted in the second quarter by 0,9% after having fallen by 1.6% in the first quarter after having surged by 6.9% in the fourth quarter. But we expect GDP growth to pick  up to a 2.0% pace in the second half of the year which would produce GDP growth of 0.3% in 2022.  We expect GDP growth of 2.1% in 2023 as the reduction in supply chain imbalances provides a tailwind to growth.

Given the GDP forecast above, we expect the unemployment rate to remain at 3.5% at the end of 2022.  .Given GDP growth of 2.1% next year we expect the unemployment rate to rise 0.1% to 3.6% by the end  of 2023.

Given the rapid increase in money supply growth, the core CPI inflation rate rose 5.5% in 2021.  It has since accelerated and it now seems likely that the core CPI will rise 6.6% in 2022.  But with money supply growth having slowed sharply some of the excess liquidity in the economy should be eliminated by the end of 2023.  We expect this core inflation measure to slow to 5.2% in 2022.  Slower, but still not even close to the Fed’s 2.0% objective.

Following the June FOMC meeting the Fed suggested that it could tighten at each of the remaining FOMC gatherings in this year.  Recent speeches by Fed officials suggest that the Fed may be aiming for a funds rate of about 3.5% by yearned.  However, with inflation continuing to run far above the Fed’s target and showing no sign of abating, we now expect the funds rate to reach 4.0% by the end of this year and 4.5% by the end of 2023,.  Even so its policy would still be accommodative because with the projected core CPI inflation rate for 2022 of 6.6%, the real rate would be -2.6% (4.0% – 6.6%) at the end of this year and -0.7% at the end of 2023 (4.5% – 5.2%).

Stephen Slifer


Charleston, SC