Looking at the global economy as we prepare to enter 2003, three observations stand out:
1. The US Federal Reserve will raise interest rates until the rate peaks at around 5%. After that, increasing market turbulence from a big credit event and/or severe economic slowdown will lead the Fed to start cutting rates in the second half, which will prevent the US economy from falling into a deep recession. Meanwhile, Europe will face high and rising energy bills, driving up the cost of living and causing stagflation.
