Recent data suggest that inflation is becoming increasingly entrenched in the economy. High inflation is eroding real income, which likely will weigh on consumer spending growth in coming quarters. Additionally, the Federal Reserve is becoming increasingly more hawkish. The FOMC has already raised its target range for the federal funds rate by 150 bps since March, and we look for the Committee to hike rates by an additional 275 bps by early next year. Higher interest rates will eventually depress interest-rate sensitive spending.

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