"Policy has in fact driven conditions globally in 2022, one of the most rapidly evolving economic and financial market environments in history," the new report said. "But one fact has been made abundantly clear: So long as financial markets function as intended, policymakers are willing to accept asset price volatility and a deterioration in macroeconomic fundamentals as a consequence of fighting inflation."

Highlights of the 2023 outlook include:

• The stabilization of global consumer behavior, cyclical acceleration in demographic and geopolitical trends, and rapid monetary tightening suggest a more challenging macroeconomic environment in 2023 that, in Vanguard's view, will help bring down the rate of inflation.
• Global conditions today and those anticipated in the coming months are similar to those that have signaled global recessions in the past. Energy supply-and-demand concerns, diminishing capital flows, declining trade volumes and declining output per person mean that the global economy likely will enter a recession in the coming year.
• Inflation continued to trend higher in 2022 across most economies as supply chains have yet to fully recover from pandemic-related distortions and as demand has been buoyed by strong household and business balance sheets. Vanguard's base case of a global recession in 2023 signifies slowing consumer demand and modest job losses that should put inflation on a downward trend through 2023, with central bankers reasonably looking to achieve their 2% inflation targets in 2024 or 2025.
• Although rising interest rates have created near-term pain for investors, higher starting rates have raised return expectations for U.S. and international bonds. Vanguard now expects U.S. and international bonds to return 4% to 5% per year over the next decade.

Related: Workers looking for options amid growing concerns over inflation, recession

"Our base case is a global recession in 2023 brought about by the efforts to return inflation to target," the report said. "Whether history views the 2023 recession as mild or significant matters little for those affected by the downturn. But failing to act aggressively to combat inflation risks harming households and businesses through entrenched inflationary pressures that last longer than the pain associated with any one recession."

However, the likely recession will not send jobless rates charging sharply higher and sticker shock will fade for the price of goods, which opens up chances for investors to rebound, according to Vanguard.