NEW YORK, (Reuters) – U.S.-based investment company PIMCO seeks to position portfolios in anticipation of normal economic conditions. However, it also anticipates higher volatility due to coronavirus uncertainties as well as inflationary risks.

PIMCO stated Tuesday it is aiming to position itself for a steeper curve because it anticipates that inflation will moderate and limit interest rate increases in the future. PIMCO expects inflation inflation to reach a peak during the first quarter of the year and gradually decline by the end.

The financial markets expect that the U.S. Federal Reserve will raise interest rates up to four times in the coming year. This is after the post-pandemic stimulus that not only boosted the U.S. economy, but also increased inflation.

According to a PIMCO report, Tiffany Wilding, North American economist, “Peak fiscal support and thus peak real GDP growth was probably realized in 2021 and the world economy now seems to be rapidly moving toward late-cycle dynamics.”

The report stated, “Monetary Policy in Most Regions has Shifted Course towards Normalization.”

Benchmark 10-year yields rose to 1.808% Monday, their highest point since January 2020. They fell to 1.775% Tuesday as investors realized that an aggressive cycle for interest rate rises could hurt growth and inflation longer-term.

To extrapolate investors’ expectations regarding U.S. growth, and monetary policy, the yield curve shape is used. The curve has flattened due to expectations of higher rates sooner than expected.

This was the lowest yield gap since Jan. 3, when the yield curve for 10-year notes and two-year notes had ever been flattened at 83 basis points.