Growth, Rates and Inflation

In this Macro Perspectives, we explore macroeconomic views across our specialist investment teams. It turns out, not everybody agrees on the path forward.

    Stephen Dover

    Stephen DoverChief Market Strategist, Franklin Templeton Investment Institute

    John Bellows, Ph.D.

    John Bellows, Ph.D. Portfolio Manager, Western Asset

    Sonal Desai, Ph.D.

    Sonal Desai, Ph.D. Chief Investment Officer, Franklin Templeton Fixed Income

    Michael Hasenstab, Ph.D.

    Michael Hasenstab, Ph.D. Chief Investment Officer, Templeton Global Macro

    Gene Podkaminer, CFA

    Gene Podkaminer, CFAHead of Research, Franklin Templeton Investment Solutions

    Francis Scotland

    Francis Scotland Director of Global Macro Research, Brandywine Global


    Our investment professionals do not always agree on the path of economic growth, inflation, or other macroeconomic factors. This year is no exception. However, one thing that does seem fairly certain is as global COVID-19 vaccination programs continue, restrictions will loosen—and the strong economic growth we’ve seen looks likely to continue. With growth has come inflation, and the question: is it temporary, or will it be more permanent?

    As the world’s economic engine recovers, many are questioning what we can expect ahead for economic growth, interest rates, inflation and the US dollar. In this edition of Macro Perspectives, I posed these and other questions to five of our investment professionals: John Bellows, Ph.D., Western Asset Portfolio Manager; Sonal Desai, Ph.D., Chief Investment Officer of Franklin Templeton Fixed Income; Michael Hasenstab, Ph.D., CIO of Templeton Global Macro, Gene Podkaminer, Head of Research at Franklin Templeton Investment Solutions, and Francis Scotland, Director of Global Macro Research at Brandywine Global.

    Key viewpoints include:

    • All of our investment professionals agreed that global growth looks likely to accelerate for the remainder of 2021 but disagree over the pace of expansion in the following years, with growth estimates varying widely across regions. For example, China’s economy has recovered from the COVID-19 shock more rapidly than the West, and some emerging markets are likely to also have strong economic growth, while Europe could take longer to recover. Higher growth may bring higher inflation.
    • All panelists anticipate an uptick in inflation in the United States this year. However, our managers disagree on the persistence of this trend over the next five years.
    • While US interest rates look likely to eventually move up, globally the picture is less clear. European monetary policy, for example, is likely to remain accommodative. Even in the United States, the picture is complicated after extraordinary monetary and fiscal expansion.
    • Our managers explore the role of fixed income in a portfolio and reiterate that even during periods of potentially rising rates, bonds can offer: diversification to other assets such as equities; risk reduction; capital appreciation; and income.

    There are many examples of opportunities within fixed income, especially with thoughtful research. Spread products such as higher-yielding corporate bonds and emerging market debt could benefit from economic growth and offer near-term investment opportunities in fixed income portfolios.

    Stephen Dover, CFA
    Chief Market Strategist,
    Franklin Templeton Investment Institute




    All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds adjust to a rise in interest rates, the share price may decline. High yields reflect the higher credit risk associated with these lower-rated securities and, in some cases, the lower market prices for these instruments. Interest rate movements may affect the share price and yield. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. Because municipal bonds are sensitive to interest rate movements, a municipal bond portfolio’s yield and value will fluctuate with market conditions. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.

    Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investments in emerging market countries involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Such investments could experience significant price volatility in any given year. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. China may be subject to considerable degrees of economic, political and social instability. Investments in securities of Chinese issuers involve risks that are specific to China, including certain legal, regulatory, political and economic risks.

    Actively managed strategies could experience losses if the investment manager’s judgement about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results.

    There is no assurance that any estimate, forecast or projection will be realized. Past performance is not an indicator or a guarantee of future results.