- A key question for 2022 will be the ability of markets to remain resilient in the face of waning stimulus, a reshaped workforce and more persistent inflationary pressures
- Monetary policy actions in 2022 may be key to global markets as central banks across the globe take diverging paths with some remaining accommodative, while many others tighten.
- We think it’s important to try to avoid today’s and tomorrow’s headlines and quick market reactions in order to think about central banks on a longer-term basis
- The Fed stands ready to raise rates “soon”, laying the groundwork for potential increases at their next meeting in March. That would be the first time since December 2018, a major development for global markets
- Global investors may need to pay attention to the macro environment in terms of the growth-inflation mix, which is a critical input into the Fed’s reaction function
- The Fed’s approach to reducing its balance sheet may also require watching
- The risks appear skewed towards the Fed under-delivering on the policy front.
- There are three hikes currently priced in for 2022, followed by two more hikes in 2023, and a bit more tightening in 2024.
- The delivery of three hikes may be a tall order, which may materialize only if the US economy remains in full overheating territory. On balance, there is a risk that the Fed falls short, whereas the odds of producing four hikes are low at this juncture.
- This asymmetric risk has important market implications. This may suggest that the USD may plateau or even possibly reverse in 2022 if the Fed policy moves are underwhelming.
- Expect central banks to take divergent paths based on the idiosyncratic economic factors in each country or domain, which may create opportunity for active positioning in fixed income
- We firmly believe as a company that interest rates and duration play a role in a diversified portfolio
- Many G10 central banks appear likely to join the emerging market counterparts in raising policy rates in 2022, lifting shorter term yields
Views expressed are those of MFS, sub-advisor to the Sun Life MFS funds. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any mutual funds managed by SLGI Asset Management Inc. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.
This commentary is provided for information purposes only and is not intended to provide specific individual financial, investment, tax or legal advice. Information contained in this commentary has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy. This commentary may contain forward-looking statements about the economy and markets, their future performance, strategies or prospects or events and are subject to uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. Forward-looking statements are not guarantees of future performance and are speculative in nature and cannot be relied upon.
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