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The Tell: World’s largest asset manager sees `no Goldilocks scenario ahead’ as central banks grapple with inflation and growth

The research arm of BlackRock Inc., the world’s largest asset manager, is dashing any hope for a perfect economic outcome in the U.S. as more than two decades of relative stability ends and central banks worldwide grapple with higher inflation and lower growth.

In a phone call with reporters on Monday, Jean Boivin, head of the BlackRock Investment Institute, said that “there’s no Goldilocks scenario ahead of us,” “the Great Moderation is over,” and the implications for investors are that they’ll need to become more nimble and dynamic with their allocation choices.

As investors continue to debate the prospects of a recession in the U.S., concerns about the global economy flared over the weekend as parts of China imposed COVID-related restrictions again as the result of a new subvariant. Meanwhile, the next major update on U.S. inflation arrives on Wednesday, with forecasters expecting an 8.8% annual headline CPI rate. As of Monday morning, all three major U.S. indexes
SPX,
-1.01%

DJIA,
-0.37%

COMP,
-1.94%

were lower and investors flocked to the safety of U.S. government bonds, pushing the 10-year Treasury yield
TMUBMUSD10Y,
2.991%

below 3%.

The current environment “will not be suitable for stable asset allocation,” Boivin told reporters as part of BlackRock Investment Institute’s midyear outlook. The period between the mid-1980s and early 2000s known as the Great Moderation, which was marked by low inflation and volatility, “is over,” he said.

New York-based BlackRock managed $9.57 trillion as of the first quarter. Its investment institute produces the closest thing that the firm has to an in-house view.

Alex Brazier, deputy head of the BlackRock Investment Institute, told reporters that central banks will likely be forced to live with higher inflation. Meanwhile, the institute and others at BlackRock recommended bracing for volatility by being underweight on developed-market equities and overweight on global credit, as well as allocating toward short-term inflation-linked bonds.

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