Vanguard's Economic and Market Overview
United States
-1.5%
Economic growth
We downgraded our forecast by 2 percentage points since the
start of the year because of factors that we expect will
continue throughout 2022—namely, tightening financial
conditions, wages not keeping up with inflation, and the lack
of demand for U.S. exports. The probability of a recession is
25% over the next 12 months and 65% over 24 months.
7% to 7.5%
Headline inflation
Surging energy and food prices keep our projections for
headline CPI around 7% to 7.5% by year-end 2022 before
it moderates in 2023. In the current environment, headline
inflation will matter more for monetary policy than it
typically does.
WHAT TO WATCH
Rising inflation expectations
In raising its policy interest rate target by 75 basis
points on June 15, a greater increase than it had
signaled at its previous meeting, the Fed cited
worrisome signs that longer-term inflation expectations
were rising. Vanguard's index of common inflation
expectations, calculated across a range of survey
measures, has moved higher than traditional longer-
term measures over the last two years.
2.5
2.4
2.3
3.25% to 3.75%
Monetary policy
The Fed turned hawkish in recent weeks, further
emphasizing inflation as a clear priority over potential
implications for economic growth. We expect the target
federal funds rate to end the year in a range of 3.25% to
3.75% and expect a terminal rate of at least 4% in 2023-
much higher than what we consider to be the neutral rate
(2.5%) and what's currently priced into the market.*
3% to 3.5%
Unemployment rate
Labor market trends are likely to keep downward pressure on
the unemployment rate through year-end, though increases
in 2023 are likely as the impacts of Fed policy and slowing
demand take hold.
Year-on-year percentage change
2.2
2.1
2
19
1.9
1.8
2008
2021
* The neutral rate is the theoretical interest rate at which monetary policy neither stimulates nor restricts an economy.
Notes: Figures related to economic growth, inflation, monetary policy, and unemployment rate are Vanguard forecasts for the end of 2022.
Growth and inflation are comparisons with year-end 2021; monetary policy and unemployment rate are absolute levels.
For institutional use only. Not for distribution to retail investors.
- Vanguard index of common inflation expectations
Survey of Professional Forecasters 10-year-ahead personal
consumption expenditures inflation expectations
Sources: Vanguard model estimates and Federal Reserve Bank of
Philadelphia data, as of June 29, 2022.
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