Inflation headlines have become common across major economies.
• US Inflation Rate Accelerates to a 40-year high of 7.5%
• Eurozone Inflation hits new record for a third month running
• Inflation hovers around a two-year high in Japan

Has inflation caught the Fed by surprise? Will it last longer than expected? Is tapering balance sheet purchases no longer enough? When will the committee hike rates and by how much?

Some expect the Fed to remain cautious and hike rates by no more than 0.25% with tapering. Others anticipate a 0.50% rate hike to fight inflation more aggressively. According to CME data, the probability of a 0.5% rate hike increased from 25% to 44.3% after the latest inflation numbers. As long as such heightened uncertainty prevails about the path of inflation and Fed policy, public markets will remain jittery and volatile.

After two years of strong market performance, the record inflation since 1982, the uncertainty regarding monetary policy, and heightened political risk (Russian invasion of Ukraine and mid-term U.S. election) indicate a new moderation phase of high volatility and frequent market drawdowns. This phase favors private markets generally and private equity particularly, as they offer a more appealing risk-return profile while limiting mark-to-market volatility.

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