The sudden failure of Silicon Valley Bank offers an excellent opportunity to reflect on current central bank policy and to share our economic outlook and market expectations for 2023. We started the year with inflation and central bank policy at the top of most lists of investor concerns and advised that we would need to be patient as housing and employment inflation were not likely going to slow meaningfully until later in the year. Inflation has, indeed, remained stickier than central banks around the world might like and has created some conviction at the Federal Reserve that rates need to remain higher for longer to tame the inflation that robs consumers of purchasing power. After a long period of near-zero rates, businesses must once again operate with the kind of fiscal discipline that a more typical cost of capital demands.
