Vanguard’s economic and market outlook at midyear 2023

June 26, 2023

(Our midyear 2023 economic outlook pages reflect the house view of Vanguard’s global economics and markets teams as of June 26, 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 midyear VEMO 2023 video

Video length: 2:18

Slow but sure progress on inflation

A line graph shows year-over-year percentage changes in core inflation in the United States, United Kingdom, the euro area, Canada, and Australia from 2000 through May 2023. Inflation in all regions accelerated to high single digits after 2020 and has only started to fall in 2023. We forecast year-on-year core inflation at the end of 2023 of 4% in Australia, 3.6% in the United Kingdom, 3.5% in the United States, 3.3% in the euro area, and 3.2% in Canada.

Notes: The figure shows year-over-year changes in the core consumer price index (CPI) for all locations except Australia, where it shows trimmed mean CPI. Year-end 2023 figures are Vanguard forecasts.

Source: Vanguard calculations, using data from the U.S. Bureau of Labor Statistics, Statistics Canada, Eurostat, the U.K. Office for National Statistics, and the Australian Bureau of Statistics accessed through Macrobond on June 15, 2023.

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 head of active and alternatives research. “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

Andrew Patterson
Vanguard Head of Active and Alternatives Research

Rhea Thomas

Rhea Thomas
Vanguard Economist

Notes: All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future results. 

A closer look

Map of the Americas


Resilient economies are ultimately likely to face the prospect of recession.

Map of Europe


Recession has already visited the euro area. A new downturn may be on the way.

Map of Asia-Pacific


China’s and Australia’s economies share one attribute: Growth slowdowns are likely.

Abstract image of balls leading into circle

10-year asset-class returns

Our 10-year annualized return forecasts are modestly lower since the start of the year for most developed markets.

Abstract of balls separated by ribbon

Inflation and portfolios

Even in the unlikely event of long-term elevated inflation, a 60/40 portfolio could serve investors well.