Equity markets have sold off on uncertainty around how quickly and how far the US Federal Reserve (Fed) will have to go to curb inflation in the US but Director of Research Matt Peron says once the outlook becomes clearer – which could take until the middle of 2022 – smoother sailing could return.

Key takeaways

  • The Fed’s shift in posture on inflation and how aggressive it may need to be to combat it has contributed to significant volatility as market participants question how the economy will respond to rising rates.
  • Strong company earnings remain a bright spot, something we expect to continue – unless rates move too far or too fast – and US companies may be near-term beneficiaries of the policy shift.
  • While volatility will likely continue in the first half of 2022, we expect a smoother second half of the year as the Fed’s policy path becomes clearer.