Impact of Inflation and Interest Rates on Capital Markets

As a portfolio manager for a large asset management firm, you are tasked with developing capital market expectations for the upcoming year. Recent data indicates a potential increase in inflation rates due to expansive fiscal policies and supply chain disruptions. Furthermore, economic indicators suggest a possible slowdown in GDP growth amidst rising interest rates.

Your job is to analyze how these factors can influence equity and fixed-income markets. Specifically, discuss the implications of the expected higher inflation and interest rates on both asset classes. Conclude your analysis by suggesting potential strategies for an investor’s portfolio in light of your expectations.