Fractured Markets, Strong Bonds

For investors, times of uncertainty can underscore the importance of a cautious approach. Central banks’ efforts to fight inflation by sharply raising interest rates have contributed to recent volatility across the financial sector, as the effects of tighter monetary policy filter into markets and the economy with a lag. Peak policy rates are now likely to be lower than markets previously were pricing. But normalizing monetary policy, and then eventually easing, will take more time and need inflation to decline closer to target levels. In the meantime, unemployment is likely to rise.