The Globe and Mail reports in its Wednesday edition that Wall Street is entering the new year in an unusually optimistic mood, with inflation declining along with the prospect of U.S. Federal Reserve rate cuts. A New York Times dispatch to The Globe, however, says that analysts at Morgan Stanley, JPMorgan and others maintain that the absence of a severe downturn in 2023 does not mean it has been avoided altogether, since the full effect of higher interest rates is still working through the economy. "There are a lot of things that have to go right to still come out the other side unscathed," said Mike Wilson, chief equity strategist at Morgan Stanley. He revised his bearish bets in July, although even then, he did not budge from his position that the economy would worsen. Central to both views is the path of inflation and whether the Federal Reserve can return the pace of price rises back to its target of 2 per cent before the economy sputters. Even without rate cuts, falling inflation and historically high wage growth could embolden consumers to keep spending, offering a tailwind for corporate profits. Others are less confident. Although the labour market remains strong, recent months have shown early signs of weakness.
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