Trust Is 2023’s Winner

Now let’s look ahead to 2023 and try to predict the state of the world economy, which this magazine’s editor, Justin Doebele, wryly refers to as “the new abnormal.” A similar conclusion is reached at Goldman Sachs. The firm’s Macro Outlook 2023 is titled “This Cycle Is Different” and was just released. Here, we must heed the late investor Sir John Templeton’s well-known caution: “This time it’s different” is the most hazardous phrase in finance. But what if the evidence suggests otherwise—that our period is unique and different?

“How can core inflation decrease so substantially with such a modest employment damage, asks Goldman Sachs? We believe that this cycle differs from earlier high-inflation times as the cause. First, post-pandemic labor market overheating manifested as extraordinary job opportunities, which are considerably easier to unwind than excessive employment. Second, there is still a long way to go before the current stabilization of supply chains and rental housing markets has a significant disinflationary effect. Third, long-term inflation expectations are still firmly in place.

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