Stagflation Is the Risk That Eludes Investors Mispricing Markets
- Slowing economy, high inflation create treacherous backdrop
- Schroders Plc says bonds will be ‘stand out’ asset for 2023
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Financial markets are caught up in a tug of war between lingering inflation and concern about a recession as they try to guess the next move by the Federal Reserve. That means investors are potentially ignoring a far more dangerous outcome: stagflation.
A mix of slowing economic growth combined with persistent inflation has the potential to dash hopes for a reversal in the Fed’s aggressive campaign to tame inflation with higher interest rates. That would expose a variety of market mispricings, pulling the rug out from under this year’s rebound in stocks, credit and other risky assets.