growth stocks may have led the early 2023 rally but stubbornly high inflation means that won’t last that’s the main message from the blackrock investment institute on monday as us stocks attempted to bounce after cementing their worst weekly losses of the year last week and as robust economic data pointed to challenges ahead for the federal reserve as it works to bring the cost of living to heel “high inflation has sparked costofliving crises putting pressure on central banks to tame inflation with whatever it takes” said the blackrock investment team led by wei li global chief investment strategist importantly the team also thinks “we are going to be living with inflation” since the fed’s recent “cycle of outsized rate hikes will stop without inflation being back on track to return fully to 2 targets in our view” blackrock inc blk is the world’s biggest asset manager overseeing about 9 trillion globally blackrock investment institute is its research arm while the research team expects spending patterns to normalize and energy prices to “relent” helping to cool inflation they also see inflation “persisting above policy targets in coming years” read confused about what’s causing inflation this metric shows what’s driving the price rise on friday the fed’s preferred inflation gauge the personal consumption expenditure showed a 54 yearoveryear increase in prices in january up from a 53 rate the month before the federal reserve has already raised its benchmark fedfunds rate to a 425475 range up from nearly zero a year ago with another increase expected in late march as the central bank works to get borrowing costs into restrictive territory with this backdrop the blackrock team expects higher rates to weigh on growth stocks rlg  reducing the value of future cash flows but to bolster value stocks rui  which “can resume their climb” started last year see chart even as rates increase inflation stays elevated and the us economy ends up in a recession the russell 1000 growth index was up 74 on the year through monday according to factset while the russell 1000 value index was up 17 for the same stretch the techheavy nasdaq comp was up 10 and the sp 500 spx was up 42 on the year “while value historically underperforms heading into recession because capitalintensive companies can’t respond quickly to changing cycles we think that could be different in this atypical economic cycle” the blackrock team wrote “value is still attractive after being beaten down for so long” they also like shortterm government debt including treasurys where yields have shot higher but not longerduration bonds particularly with last year’s painful selloff across markets showing that the value of both stocks and bonds can drop in tandem the 10year treasury yield tmubmusd10y was at 4 on monday near its 42 peak in october but the 2year tmubmusd02y rate was back to roughly its 2007 level of 48 “central banks are unlikely to come to the rescue with rapid rate cuts in recessions they engineered to bring down inflation to policy targets” the blackrock team said of its preference for shorter treasurys “if anything policy rates may stay higher for longer than the market is expecting”