Restrictive monetary policy and improving supply fundamentals are contributing to a broad-based easing in consumer price inflation and moderation in wage growth.

Even though we do not expect the Fed to raise the FFR target further, the real policy rate is expected to continue to rise as inflation moderates. Additional tightening in real terms will continue to put downward pressure on inflation well into 2024.

We expect by mid-2024 the Fed will be confident inflation is on a sustainable path to its 2% target and that the Fed will commence cutting in Q3.

We expect rates will fall 200 bps from peak to trough, with a terminal FFR ceiling rate of 3.50%, implying positive real rates through the cycle.