6 | 2023 Investment Outlook | December 12, 2022 Cost-Benefit Analysis of Policy Actions ƒ Cost is measured by job losses. Benefit is measured in terms of quality future growth with lower inflation. ƒ The Fed believes that in 2023 it may have a window to tame inflation by keeping policy rates higher for longer. Economic growth and asset valuations may be collateral damage–but worth it. In the Fed’s view, aggressive action now may mean eliminating the need to act more aggressively later, creating greater damage. ƒ With peak inflation likely behind us, high-quality bonds may benefit, while riskier assets and lower-quality credit may suffer. However, if the Fed’s plan to durably stem inflation works, asset valuations may benefit over the longer term. ƒ Be nimble and prepared to adjust investment positions as events unfold in 2023. “It is difficult to expect a deep recession with such a robust labor market.” In January 2023, Jim Caron will take on a new role as Co-Chief Investment Officer, Co-Deputy Head and Senior Portfolio Manager of Global Balanced Risk Control (GBaR). Risk Considerations: Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest- rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest-rate changes.