The evolution of inflation and central bank policy will likely drive higher market volatility in 2022.
With inflation top-of-mind for investors, we believe the Federal Reserve’s reaction function will likely be a key driver of real yields, the dollar and risk markets this year. Although we anticipate that inflation levels will ease, the decline will likely be shorter-lived and shallower than some expect. Meanwhile, policy actions by the Fed and other central banks are likely to drive increased levels of market volatility, and thus impact investment strategy moving forward.
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