Perspectives : Markets & Economy | June 28, 2023

Vanguard’s economic and market outlook at midyear 2023

The themes we highlighted in the Vanguard Economic and Market Outlook for 2023: Beating Back Inflation—persistent inflation, tight labor markets, rising policy interest rates—remain well in play at midyear.

As Joe Davis, Vanguard’s global chief economist, discusses in this video, we foresee continued progress in the fight against inflation, with central banks having to keep interest rates in restrictive territory for longer. With that, we anticipate some economic weakness in the months ahead. But there is a silver lining.

This update to our 2023 economic and market outlook summarizes our views at midyear.

Joe Davis video

Video Length: Video length: 2:18

The last mile to target inflation may take some time

There’s progress in the fight against inflation, but it’s too early to declare victory. Vanguard foresees developed-market core inflation continuing to fall through the end of 2023 from recent generational highs. But we expect it will be late 2024 or even 2025 before it falls back to central banks’ targets of mostly around 2%.

“We believe central banks have more work to do,” said Andrew Patterson, Vanguard senior international economist. “We’ve always said inflation wouldn’t come down magically, even as post-pandemic supply chain issues were resolved. The pandemic accelerated demographics-driven changes to labor markets. Strong demand for workers who can command higher pay than historical standards requires monetary policy that is clearly restrictive. The last leg of inflation reduction to central bank targets may be the most challenging.”

That last leg is also likely to vary by region, said Rhea Thomas, a Vanguard economist. “The initial catalysts for the surge in inflation were global in nature,” Thomas said. “The pace at which inflation travels that last mile to target will depend more heavily on local drivers: how restrictive policy tightening is in each country or region and local demand, labor market, and housing dynamics.”

Thomas noted that Australia, Canada, and now the United States have paused in what had been a relentless cycle of rate hikes. Hikes have since resumed in Australia and Canada, and the Federal Reserve has hinted that’s likely to be the case in the United States as well.


Andrew Patterson
Vanguard Senior International Economist

Rhea Thomas 
Vanguard Economist


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Joseph H. Davis, Ph.D.

Global Chief Economist and Global Head, Investment Strategy Group