Macro Matters: Inflation Path and Investment Implications
Which macroeconomic trends do we think matter the most? Read through the investment implications in this month’s issue of Macro Matters.
Key takeaways
- Growth
U.S. growth is likely to accelerate in the first half of 2026, supported by fiscal policy, a weaker USD, and lower real yields. The eurozone is stabilizing at a low level, though confidence remains fragile. Emerging markets (EM) benefit from stronger currencies, healthy balance sheets, and rising commodity prices. - Inflation
Inflation continues to slowly trend lower, but the sharp rise in commodity prices might make inflation stickier and the U.S. Federal Reserve’s (Fed’s) job a bit trickier to cut interest rates further. - Rates
Policy divergence remains a defining theme. We expect gradual easing from the Fed but probably less than expected by the market, with the European Central Bank on hold for now while the Bank of Japan continues very careful tightening.
Our economic outlook:
The macro environment continues to improve as global growth is reaccelerating, supported by looser fiscal and looser monetary policy. That said, the inflation-versus-growth trade-off could worsen for the U.S. as the USD continues to weaken and global commodity prices rise sharply. Rising growth and sticky inflation would make it harder for the Fed to cut interest rates this year.
The impact from U.S. fiscal stimulus is likely to peak in the second quarter, with gradual monetary easing expected absent a significant labor market deterioration. Despite gains in real income, the U.S. consumer remains pessimistic on the economy and the labor market. Distortions in economic data from the shutdown will continue to be felt until at least April of this year. On the positive side, the latest inflation print showed an ongoing moderation in headline inflation, though stronger growth could offset some of the progress going forward. While this would mean less rate cuts than currently expected, not necessarily negative news for markets as long as stronger growth rather than stronger inflation is the reason for holding rates stable. The Fed upgraded its growth assessment in its last meeting, showing increased confidence in previous rate cuts supporting the labor market while mentioning further progress on the inflation front.
In the eurozone, the latest Purchasing Manager’s Index numbers point to a stabilization in manufacturing, though at a low level. Services continue to drive growth, though business sentiment remains weak. We need to see how much fiscal stimulus can change the situation as rising energy prices raise input prices and make the industrials sector less competitive. The Bank of Japan is busy in talking the currency up while avoiding raising interest rates too aggressively. China continues to employ fiscal measures aimed at stabilizing sentiment. EM ex-China, in particular in Latin America, remain attractive with solid growth and inflation outlooks.
U.S. growth remains supported by policy, with 2025’s artificial intelligence (AI)-driven productivity gains offering a buffer. Japan should also stay resilient, while eurozone expectations appear toward the upper bound of what is achievable. EM continues to demonstrate growth resilience.
Inflation in the U.S. has moved closer to target, though a moderately restrictive rate is needed to bring it from 2.7% year over year to the 2% target. Internationally, inflation seems under control, with the U.K. expected to be closer to target toward summer this year while China continues to struggle with deflation. Policy, growth, and inflation divergence will remain key sources of opportunity in 2026.
Prospective changes to asset allocation:
- Equities
We remain constructive on equities and maintain an overweight, particularly in Asia EM, more broadly, and in the U.S. The U.S. earnings season has been strong so far, with both revenue and profit results exceeding expectations across most sectors. Historically, periods of growth recovery have tended to favor cyclical equities, commodities, and EM. While this environment is supportive to U.S. equities, ongoing USD weakness provides investors with ample international opportunities. - Fixed income
We stay neutral on U.S. duration, preferring curve steepeners and duration in developed ex U.S. markets and spreads in EM debt. - Commodities and foreign exchange (FX)
We continue to favor commodities with a particular focus on precious metals, industrial metals, and energy. The recent rally looks overextended in the short term and we might see profit-taking, though the longer-term trend supported by strong demand and elevated geopolitical risk remains in place. Currency wise, we remain positive on EM and select developed countries benefiting from the commodity boom, like the Australian dollar or the Brazilian real.
Multi-asset allocation views:
These multi-asset views reflect tilts to our strategic asset allocation models and are based on a 6- to 12-month time horizon, driven by both quantitative and fundamental research.
+ (Overweight on overall asset class)
= (Neutral on overall asset class)
– (Underweight on overall asset class)
Forward investment implications:
Curve steepener refers to a change in the yield curve where the difference between long-term interest rates and short-term interest rates increases, making the yield curve steeper.
Duration is a measurement of the sensitivity of a bond’s price to changes in Treasury yields. A fund’s duration is the weighted average of duration of the bonds in the portfolio. Duration should be interpreted as the approximate change in a bond’s (or fund’s) price for a 100-basis-point change in Treasury yields. Duration is based on historical performance and does not represent future results.
Hedging a bond means using a separate investment to offset the potential risks of the bond.
The Purchasing Manager’s Index (PMI) is an economic indicator that measures the health of a country’s manufacturing or services sector.
This material is provided for informational purposes only and is intended for retail public distribution in the United States. Use outside the United States is for professional/qualified investors only.
ALL-02032026-i5miuxxs
Related insights
The Federal Reserve (Fed) held rates steady amid solid growth and sticky inflation, with markets reassessing rate-cut expectations as rising commodities, a weaker USD, and political uncertainty complicate the outlook.
Article
Macro Matters: Carry OnWhich macroeconomic trends do we think matter the most? Read through the investment implications in this month’s issue of Macro Matters.
Venezuela's political transition sparks global market ripples, boosting gold and the U.S. dollar while raising questions about oil production, regional politics, and global power dynamics. Explore the short- and long-term implications for investors.
Article
A Fine BalanceThe Federal Open Market Committee (FOMC) dropped its key interest rate by 0.25% to 3.50–3.75%. Going into 2026, we see signs that fiscal stimulus will be more meaningful in addressing the current weakening labor market.
Allspring PMs keep their fingers on the pulse of the markets—and their selfie cameras—going into 2026.
George Bory and Ann Miletti share Allspring's 2026 outlook. From resilient bond strategies to AI-powered equity growth, they unpack the key drivers set to shape next year's financial markets.
Which macroeconomic trends do we think matter the most? Read this month’s issue of Macro Matters.
Article
Nothing to See HereDespite limited access to reliable data due to the ongoing government shutdown, the Federal Open Market Committee (FOMC) announced another 0.25% cut, lowering its key interest rate to 3.75–4.00%.
How are Allspring’s investment experts thinking about the U.S. government shutdown and market implications?
Macro Matters provides a concise, comprehensive look at macroeconomic themes that matter to clients.
The Federal Reserve lowered its key rate by 25 basis points at its September meeting following an eight-month pause. George Bory and John Campbell discuss how U.S. bond and equity markets could respond.
Macro Matters provides a concise, comprehensive look at macroeconomic themes that matter to clients.
Macro Matters provides a concise, comprehensive look at macroeconomic themes that matter to clients.
With a robust U.S. economy, above-target inflation, and continued tariff uncertainty, the FOMC kept its key interest rate at 4.25–4.50%.
Macro Matters provides a concise, comprehensive look at macroeconomic themes that matter to clients.
Speculation over the next chair of the Federal Reserve (Fed) is dominating headlines and keeping markets on edge. A more dovish leader could mean a big shift in monetary policy and raise concerns about the Fed’s independence.
As the events concerning Iran continue, Allspring Fixed Income’s message—"bonds provide certainty in an uncertain world”—remains central to our positioning.
A potential conflict with Iran has consistently appeared in our monthly Market Risk Monitor for over two years. Now that risk has materialized. Our equity portfolio managers assess the implications for global markets.
What might the future hold for markets? In this roundtable discussion, our investment experts explore pressing topics like deficit spending, trade tensions, the Fed’s next moves, and the weakening U.S. dollar.
With ongoing tariff uncertainty and U.S. employment still strong, the Fed kept its key interest rate at 4.25–4.50%.
Amid uncertainty around tariffs and their impact on U.S. growth and inflation, the Federal Reserve held its key interest rate at 4.25–4.50%. We explain what may lie ahead.
Macro Matters provides a concise, comprehensive look at macroeconomic themes that matter to clients.
George Bory discusses three key U.S. headlines from April 22 and how fixed income assets may be affected.
George Bory discusses reasons for the recent sharp price fluctuations in stock & bond markets, including in U.S. Treasuries, and identifies actionable approaches fixed income investors may pursue in today’s environment.