Buoyed by faster growth and higher inflation expectations, the Fed advances rate hikes to 2023 and broaches the topic of tapering.

We believe the U.S. is undergoing a large price-level adjustment, not shifting to a persistently higher inflation regime.

To sustainably reach its inflation target, the Fed must raise inflation expectations – and that likely will require a period of above-target inflation.

The Federal Reserve’s communications following its March meeting should help anchor inflation expectations.

Longer-dated Treasury yields have climbed as markets consider whether economic growth and inflation expectations might accelerate more rapidly. We believe inflation pressures will remain in check and bond yields will be range-bound.

A recent report showed an uptick in inflation in Europe, but markets are pricing in low inflation over the long term. We see opportunity for investors to hedge inflation risk.

The Federal Reserve signals that monetary policy accommodation will remain firmly in place.

As European inflation and growth remain subdued, the European Central Bank expanded its monetary support. The central bank, however, is now focusing more on the region’s financing, rather than financial, conditions.

We believe the Fed’s mortgage purchase program is helping to bolster economic activity, and accomplishing more than Treasury purchases alone.

The lack of market reaction suggests that many investors are not convinced that the Fed’s new guidance represents any material shift in policy.

The Federal Reserve wants financial conditions to remain accommodative as it looks to support the U.S. recovery.

While a near-term mechanical bounce in economic activity in response to the lifting or easing of lockdown measures looks likely, we expect the subsequent climb up to be long and arduous.

We expect the Federal Reserve will continue to conduct asset purchases at its current pace through year-end, and eventually commit to keeping interest rates on hold through 2022. This should help ensure easy financial conditions and support the economic recovery.

Over the next several quarters, monetary conditions will likely be set not only by Fed balance sheet policies, but also by the expected path of interest rates.