Investing Ideas
Investing in an era of persistent inflation
The implications for asset prices may depend on whether we see good or bad inflation.
Key Takeaways
- Inflation has steadied slightly above the Fed’s target but may tick higher in the latter half of 2025.
- Historically, “Good” inflation, or when inflation expectations are positively correlated with real economic growth, has been good for equities and credit.
- “Bad” inflation, or when inflation stays elevated but economic growth falters (stagflation), has generally resulted in muted returns for equities and fixed income over time.
- Investors may consider tactical overweight positions in floating-rate debt, non-U.S. equities, and several other asset classes with stronger historical odds of outperforming inflation, which may provide protection against unexpected inflationary shocks.
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Investing in an era of persistent inflation
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