An executive for UBS Global Wealth Management, one of the world’s largest wealth managers, says that “disinflation” will be the financial word of the year for 2023.
- This comes following a year of runaway inflation, peaking year-to-year in the U.S. in June at 9.1%. It has dropped in the subsequent six months, higher than expected, to 7.1% in November.
- It is unclear how long the Fed’s high-interest rates will take to lower inflation to its targeted 2% goal, Fortune reports.
- The eyes of the financial world are looking to inflation, and disinflation will be the most critical factor for investors, Federal Reserve policies, and recession fears.
Why it’s News
Jason Draho is the head of American asset allocation for UBS Global Wealth Management. He declared “disinflation” will dominate the economy—meaning that he believes that inflation is likely to see a rapid decline in early 2023. He does not consider this an economic forecast, though.
“Disinflation is already happening. That there will be disinflation is not really in dispute at this point, the debate is over how much disinflation there will actually be,” says Draho.
“Predicting that disinflation will be the most dominant market story next year is not a prediction for significant disinflation, with a return to 2% inflation by year-end. But just as the Fed tightening financial conditions is what drove performance across financial markets this year, potential disinflation could do the same in 2023.”
The levels of disinflation will affect the overall direction of the U.S. economy going forward. With disinflation occurring, Inflation will likely return to manageable levels around 2% to 4%, but the length of the process will determine just how painful the outcome becomes.
The Federal Reserve remains determined to continue raising interest rates until it attains its desired outcome—and the longer these continue, the longer investors will cool on making risky investments and the stiffer the recession at the end of it becomes.