The inflation swaps market seems to think that the CPI will come crumbling down in 2023, reaching a rate of 2.5% by the middle of the year.Many measures suggest that inflation may come down, but others indicate it is sticky and may get held up at higher levels than the market thinks. The Atlanta Fed 12 Month Sticky CPI rose to a cycle in November up to 6.6%.
Companies will be able to manage margins just enough to keep earnings equal to 2022 levels, meaning no earnings recession in 2023, no growth either, and around $220 in earnings for the S&P 500 versus the near 7% growth rate estimates at the end of 2022.With inflation stuck in the 4 to 6% range and the economy holding together, the Fed will be forced to raise rates above the 5.1% level indicated at the December FOMC meeting. It will most likely result in overnight climbing above 6%.