August 2022| Investors expect central banks will tame inflation whatever the cost, even triggering recession if necessary. This may indeed be policymakers' approach in the short term as they seek to re-establish their credibility, but investors risk overestimating central bankers' ultimate willingness to hurt growth.. We predict that inflation will therefore be higher than many expect over the next couple of years, with important implications for asset prices.
01 | We predict that central banks will be aggressive in the short term as they try to re-establish credibility, with the European Central Bank a case in point.
02 | Investors may overestimate policymakers' willingness to hurt growth and misjudge how long it will take for inflation to respond to rate hikes.
03 | Inflation will likely stay high. Flexible duration, some real assets, inflation-adjusted bonds and select emerging markets may help investors navigate this regime.
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