Higher inflation is here, raising questions for investors about the economy and financial markets, wrote Lara Rhame, chief U.S. Economist and managing director at FS Investments, and Brian Cho, managing director and head of quantitative research at Chiron Funds. The report outlines the impact of inflation on fixed income and equities, and discusses how higher inflation changes the dynamics of the foundational 60/40 portfolio.
Higher inflation has arrived, and looms as a top challenge for investors in 2022. For two decades, the threat of inflationary pressures largely has been dormant. Low-business-cycle volatility, including relatively long expansions in the 1990s and the 2010s caused inflation expectations to be close to or slightly below 2 percent. Bouts of surging oil prices briefly caused headline inflation to jump in 2008, but core inflation which excludes food and energy prices, remained stable at a low level. This placid backdrop has abruptly ended. In October, headlin