Fortunately, since that time, stagflation has been rare in advanced economies. But memories of steep market losses caused by stagflation cast a long shadow. Hence the recent surge in US inflation has investors concerned that they may experience stagflation for the first time in 40 years. This is because both bonds and equities (public and private), which represent the primary components of many diversified portfolios, could suffer negative returns in a stagflationary environment.
While Meketa believes that it is unlikely that the current inflationary environment will deteriorate into full-blown stagflation, we acknowledge that institutional investors may benefit from a closer look at stagflation, its origins, variables, and potential outcomes.
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