1、The key macroeconomi c questi on of the year has been whether i nflati onarynoverheati ng can be reversed wi thout a recessi on.Our analysi s suggests that theanswer i s yesan extended peri od of below-potenti al growth can graduallyreverse labor market overheati ng and bri ng down wage growth and u

2、lti matelyi nflati on,provi di ng a feasi ble i f challengi ng path to a soft landi ng.The i ni ti al steps along thi s path have been successful,but there i s much furthernto go i n 2023.We expect another year of below-potenti al growth and labormarket rebalanci ng to solve much but not all of the

3、underlyi ng i nflati on problem.Unli ke consensus,we do not expect a recessi on.The first step i n keepi ng the adj ustment process on track i s ensuri ng that GDPngrowth remai ns below potenti al.The fiscal ti ghteni ng that helped to slow theeconomy thi s year has mostly run i ts course,but the la

4、rge ti ghteni ng i n financi alcondi ti ons engi neered by the Fed should keep GDP growth near 1%i n 2023.Consumer spendi ng should grow a bi t more firmly as i ncome begi ns to ri seagai n,but thi s i s li kely to be offset by weakness elsewhere,especi ally i nhousi ng.The second step requi res sof

5、t GDP growth to further reduce labor demand.Sonfar,the speed and composi ti on of labor market rebalanci ng have beenencouragi ng.Our j obs-workers gap has shrunk substanti ally,dri ven by a decli nei n j ob openi ngs rather than employment.I n 2023,we expect a further largedecli ne i n j ob openi n

6、gs coupled wi th a pp ri se i n the unemployment rate toshri nk the j obs-workers gap from the hi stori cal peak of 5.9 mi lli on reached earli erthi s year to the 2 mi lli on threshold that we esti mate i s necessary to dampenlabor market overheati ng.The thi rd step requi res labor market rebalanc