A global asset manager believes market volatility and a higher inflation regime could surge globally coming out of the COVID-19 pandemic.
In its midyear outlook summary, “Looking Beyond The Restart”, BlackRock analysed what comes next post-pandemic through three investment themes – the new nominal, China stands out and journey to net zero – saying that the post-GFC playbook “won’t work”.
“More relaxed attitudes toward debt and deficits are a major shift from the neoliberal consensus that ushered in a four-decade period of falling inflation and rates,” BlackRock’s outlook read.
“New policy paradigms mean many central banks are now attempting to overshoot inflation targets to make up for past misses. Yet markets have not yet bought the narrative and are pricing in a more rapid lift-off in rates than what the Federal Reserve’s new policy framework implies.
“This mismatch and resulting uncertainty could stoke volatility.”
BlackRock predicts a higher inflation rate in the medium-term as a result of a more muted monetary response than in the past.
It adds that the mildly higher inflation should support risk assets but the potential to go “even higher".
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