Mind the lag: recession fears flare too fast

Central banks will be aggressive in the short term as they try to re-establish credibility, with the European Central Bank a case in point. Investors may overestimate policymakers’ willingness to hurt growth and misjudge how long it will take for inflation to respond to rate hikes. Inflation will stay high. Flexible duration, some real assets, inflationadjusted bonds and select emerging markets may help investors navigate this regime.