An Update from Our CIOs: 2022 Was a Tightening Year; In 2023 We Will See Its Effects

Bridgewater

Bob Prince

Article

1 Pages

Bridgewater Associates examines how 2022’s aggressive monetary tightening could flow through economies in 2023, arguing that markets had priced higher real yields but not their economic consequences. It sees restoring 2% inflation as requiring weaker spending, softer earnings, and a looser labor market.

Key Takeaways

Labor Market Adjustment: Bridgewater estimates unemployment may need to rise at least 2% for roughly 18 months to sufficiently rebalance labor supply and demand.
Earnings Pressure Needed: Corporate earnings may need to decline about 20% to encourage enough layoffs to reduce wage pressures and help restore price stability.
Wage Inflation Challenge: US wage inflation was about 5%, with 14 of 15 major sectors above 4%, compared with roughly 2% wage growth needed for 2% inflation.
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