Janus Henderson’s US-based Multi-Asset Solutions Team present their latest Tail Risk Report, using market prices to infer expected tail gains and losses for each asset class. In May, signals continued to forewarn that inflation may not be dead.

Key takeaways:

  • Although options-based market signals are not indicating a break-out in inflation, they pose as a cautionary reminder that we should be wary of the risk of inflation.
  • While the US Federal Reserve (Fed) pivoted to a more accommodative stance early this year to fend off concerns of a slowing economy, we believe this shift has actually increased the risk of accelerated inflation.
  • This risk that Federal Open Market Committee (FOMC) members mistakenly conclude that the lack of accelerating prices means inflation risk is low would be the greatest risk to the real economy and financial markets.

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