Despite volatility, the basic storyline of inflation and the Federal Reserve should continue to drive market behavior.

For the most part, 2022 has unfolded largely on script, with inflation proving stubborn and the Federal Reserve seeking to cut off the spigot. The debate and volatility has largely been regarding the degree to which the Fed will go in terms of the elevation and timing of its terminal rate to achieve its goals, and how this could affect growth rates. New dynamics have recently made the storyline more complicated, with the U.K. government’s move to debt-heavy stimulus even as the Bank of England pledges it will not hesitate to raise interest rates; the potential for energy shortages in Europe this winter; and uncertainty around the trajectory of China’s growth given COVID lockdowns.

In this publication, we highlight five key observations that inform our outlook. For our high-level views on market sectors, see the table at the end of this page.