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2023 outlook: Central banks in the spotlight

January 25, 2023
clock 6 MIN READ

Jim Solloway, SEI Chief Market Strategist and Senior Portfolio Manager, and Kathy Oldfield, Director of Client Portfolio Management, discuss the economic outlook for the coming months.

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- Hi, I'm Kathy Oldfield, Client Portfolio Manager at SEI. Today I am here with Chief Market Strategist and Senior Portfolio Manager Jim Salloway to provide a quick preview of one of the timely topics he covers in our most recent Economic Outlook. Jim, interest rates were a key topic of discussion for investors in 2022, and it looks like they will be again in 2023. Can you give us your thoughts on what we should expect?

- Thanks, Kathy. You're right. Interest rates will be near the top of the list in terms of important data points in the new year. As you can see in the chart, interest rates surged in 2022 as global central banks raised rates in an effort to fight inflation. The US and Canada have been mostly pushing up rates in lockstep with each other. Rates in Europe are rising and even Japan, which now has the only negative policy rate in the world, is finally shifting its policy stance from extreme monetary easing. Market-implied pricing of the federal funds rate suggests that investors and traders believe that the Fed will end its tightening cycle early in 2023, peaking at 5%, and will cut the federal funds rate back to four and a half percent by year end. That's significantly below what the Fed currently thinks will prove necessary to reign in inflation. Rather than the rate cut many investors and borrowers are hoping for, we believe tight labor markets and a stubbornly resilient US economy will keep inflation and interest rates higher for longer. If there is going to be a surprise, it may still be toward a somewhat higher federal funds rate in 2023, not a lower one. In our opinion, tight labor markets and a stubbornly resilient US economy will keep inflation higher for longer.

- Thanks, Jim. We always appreciate your insights. As your OCIO, SEI is focused on the major issues that are of interest to our clients. We incorporate these discussions into our advisory process, as the impact varies based on each client's goals. For more of SEI's insights, read our latest Economic Outlook available on our website.

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This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Positioning and holdings are subject to change. All information as of the date indicated. There are risks involved with investing, including possible loss of principal. This information should not be relied upon by the reader as research or investment advice, (unless you have otherwise separately entered into a written agreement with SEI for the provision of investment advice) nor should it be construed as a recommendation to purchase or sell a security. The reader should consult with their financial professional for more information.

Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results.

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