As the economy slides into a mild recession in the first half of next year, triggering a rebound in the unemployment rate to almost 5% by end-2023, the resulting slowdown in the growth rates of wages and unit labour costs will play a supporting role in bringing down core services inflation. We expect core inflation to slow more quickly than the Fed or markets are prepared for, which should persuade officials to begin cutting interest rates again before the end of 2023.
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