Thread by @RickRieder

Clearly, #markets are in the midst of a #volatility spike, and indeed economic data for a time will be more #volatile and less certain, but at times like this it’s particularly important for investors to think hard about those factors that matter most to markets.

As such, next of our 8 @blackrock blog themes are: 3) that “1.8%” can still be a guidepost for understanding the trajectory of #economy and #markets in 2020, assuming #coronavirus risk can be mitigated; and 4) #inflation may see its best post-crisis year, but not exceed 2%.

More specifically, we think U.S. real #GDP growth and core #inflation are likely poised to stabilize near longer-run averages of roughly 1.8% this year, but clearly significant left-tail risks to global growth have increased.

This should imply that 10-Year @USTreasury rates may hover below 1.8% in the early part of the year, as @coronavirus fears drive rates temporarily lower, but assuming the illness can be effectively mitigated, #rates should drift higher as the year wears on and fears dissipate.

The @federalreserve policy rate is also likely to stay near 1.8%, barring a serious #economic shock to the domestic economy, and the critical guidepost that we’ll be focused on for judging changes to the #Fed reaction function is #financialconditions.

We currently foresee a cyclical rebound in #inflation during the first half of 2020, but we’re skeptical that it will be either sustained, or substantial.

So, while #Treasury yields may eventually rise on the back of this #inflation, any rise in yields would be met by unprecedented demand for yielding #assets, limiting the impact.

Finally, as more of our #economy has been fueled by growth in services, it’s moderated the volatility of #inflation: #technological advances have also led to much greater price transparency/competitiveness, so consumers remain confident without expectations of higher prices.