INVESTMENT OUTLOOK FOR 2023 - 7 - shelter costs will eventually reflect the ongoing slowdown in the housing market. We anticipate core personal consumption expenditures (PCE) inflation will fall below 3% by the end of 2023. One open question is whether wage inflation can be reduced without a large increase in unemployment. The number of job vacancies relative to the size of the labour 1 force is still about twice the long-run average , meaning companies are forced to raise wages to attract workers (see Exhibit 1). Historically, vacancies only decline significantly when the unemployment rate rises. The US Federal Reserve believes that the currently high number of vacancies reflects the reorganisation of the labour market and the economy following the pandemic. As that process ends, vacancies could fall without the unemployment rate necessarily rising. There is another reason to believe the unemployment rate may not rise very much. US companies have learned from the lockdown recession that firing employees may reduce costs in the short term, but it creates problems later on. They may move towards a more European model, where employees are kept on the payroll through a recession, allowing for a swifter and smoother recovery later. Offsetting the drag from higher policy rates will be the ongoing investments triggered by the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act, which will direct nearly USD 400 billion in tax credits and subsidies for numerous clean energy programmes. 1. As of November 2022 Exhibit 1: Wage gains will only slow once job openings fall Openings as % of civilian labour force (CLF) and employment cost index 7 Job openings (% of CLF) 7 6 Compensation (YoY %) 6 5 5 4 4 3 3 2 2 1 1 2000 2005 2010 2015 2020 Data as at August 2022. Sources: FactSet, BNP Paribas Asset Management.