The possibility of a renewed inflation surge—something that most of Wall Street views as a fringe risk—is firmly on the radar of one macro research firm.
While the consensus among forecasters has shifted toward confidence in the economy’s resilience, TS Lombard is cautioning that investors may be underestimating the danger of a scenario reminiscent of the late 1960s and 1970s: an unexpected burst of inflation that, if paired with slowing growth, could lead to stagflation.
For wealth advisors and RIAs, this scenario is worth watching closely. Stagflation—a mix of sluggish growth and persistent inflation—creates one of the most difficult backdrops for both policymakers and investors. Unlike a standard recession, where the Federal Reserve can cut rates aggressively to revive demand, elevated inflation ties the Fed’s hands. Rate cuts risk fueling even higher prices, leaving policymakers in a no-win position and investors searching for resilient portfolio strategies.
Why TS Lombard Is Sounding the Alarm
At first glance, the risk seems remote. Inflation has been moderating, GDP growth remains healthy, and the Fed has already restarted its easing cycle with a rate cut in September. Many market participants interpret that as a signal the worst is behind us.
But Dario Perkins, TS Lombard’s head of global macro, believes the Fed may be misreading the data. In a recent client note, Perkins argued that the central bank could be cutting rates into a re-acceleration of demand, setting up conditions that echo the late 1960s. Then, too, the Fed began easing before inflation pressures became visible, only to watch consumer prices spiral higher throughout the following decade.
Perkins acknowledges that much of the cooling in inflation during 2025 can be explained by “significant negative supply shocks,” particularly tariffs that slowed production and trade. On the demand side, uncertainty around tariffs and labor-market anxiety have weighed on spending. But he believes those drags could fade quickly in 2026, opening the door to renewed demand—and with it, renewed price pressures.
Four Drivers of Potential Demand Re-Acceleration
Perkins outlines four forces that could cause demand to strengthen in 2026, creating the conditions for sticky or rising inflation just as the Fed is cutting rates:
1. Pent-Up Demand.
Consumer caution in 2025 has been shaped by uncertainty around trade policy and employment trends. If those uncertainties fade, households may unleash deferred spending. Perkins suggests that the declines in output and employment this year could translate into stronger activity next year, effectively “catch-up” growth.
2. Fed Easing.
Monetary policy works with lags, but areas of the economy most sensitive to interest rates—housing and consumer goods—are already flashing signs of renewed activity. New home sales jumped 20% in August, mortgage applications spiked in September, and refinancing activity has accelerated. If rate cuts continue, that momentum could feed into broader consumer demand.
3. Global Central Bank Stimulus.
The Fed has only just restarted its easing cycle, but many other central banks have been cutting for over a year. That synchronized global easing, Perkins argues, will support worldwide growth in 2026. U.S. exporters and multinational firms could benefit, further fueling domestic demand.
4. Fiscal Stimulus.
In addition to monetary tailwinds, fiscal policy may add fuel. Proposals such as the “One Big Beautiful Bill” under the Trump administration aim to inject stimulus directly into the U.S. economy. Meanwhile, other major economies, including Germany and China, are also adopting fiscal support measures. Coordinated fiscal expansion could further increase aggregate demand.
Lessons from the 1960s and 1970s
If these forces combine, the Fed may find itself in a familiar bind. In the late 1960s, policymakers eased just as inflation pressures were building. By the early 1970s, the U.S. entered a stagflationary era marked by persistently high inflation and slowing growth. Inflation peaked near 15% in 1980 before Paul Volcker’s aggressive rate hikes finally broke the cycle.
Perkins is quick to note that he doesn’t expect a repeat of that extreme scenario. Still, he warns that the combination of supply shocks, premature rate cuts, and political interference in monetary policy could put the economy on a dangerous trajectory.
Implications for Advisors and Clients
For wealth advisors, the question isn’t whether stagflation will materialize—it’s whether the Fed’s margin for error is narrower than markets assume. Most forecasts still anticipate continued growth with moderating inflation. But investors are beginning to reassess how much space the Fed really has to cut rates without reigniting inflation.
Market pricing reflects that uncertainty. On Thursday, the probability that the Fed holds rates steady rose to 14% from 8%, as traders digested stronger-than-expected GDP data and lower jobless claims. At the same time, expectations for two additional cuts by year-end fell from 73% to 63%, according to the CME FedWatch tool.
That repricing underscores a critical point for advisors: the “easy” disinflation narrative may not be as secure as consensus suggests. Advisors positioning client portfolios should consider how both persistent inflation and a stagflationary environment could affect equity valuations, bond yields, and real assets.
Portfolio Strategy Considerations
1. Fixed Income.
Duration risk could reemerge if inflation expectations climb, eroding the benefit of falling yields. Advisors may want to diversify bond exposure, favoring inflation-protected securities (TIPS) and short-to-intermediate maturities while limiting reliance on long-duration Treasuries.
2. Equities.
Earnings resilience will matter more than ever. Companies with pricing power, low leverage, and strong cash flows are better positioned to withstand an environment of sticky inflation and slower growth. Sectors such as healthcare, energy, and certain areas of technology could provide relative insulation.
3. Real Assets.
Historically, commodities, real estate, and infrastructure exposure have provided hedges in inflationary periods. With housing demand already showing early strength, select real estate strategies may benefit from both monetary and fiscal tailwinds.
4. Global Diversification.
Given that other central banks have been easing aggressively, global demand may surprise to the upside. International equities, particularly in regions benefiting from fiscal stimulus, could provide diversification benefits if U.S. inflation pressures intensify.
5. Alternatives.
In uncertain macro environments, alternative strategies—including hedge funds, private credit, and managed futures—can help balance traditional exposures and potentially generate uncorrelated returns.
Navigating the Uncertainty
For RIAs, the takeaway is not to bet on stagflation as a base case, but to acknowledge that the risk is higher than consensus estimates. Advisors must prepare clients for a wider range of outcomes, balancing optimism about economic resilience with caution around the Fed’s ability to manage inflation without sparking unintended consequences.
Perkins’ warning serves as a reminder that macro conditions can shift quickly. Tariffs, fiscal policy, labor dynamics, and consumer psychology all have the potential to alter the path of inflation and growth in ways that are hard to model. For investors who remember the 1970s, the lesson is clear: complacency in the face of inflation risk can be costly.
The Fed is trying to thread the needle—supporting growth without reigniting inflation. But as the market repricing shows, confidence in their ability to pull it off is far from unanimous. Advisors should help clients focus on resilience, flexibility, and risk management.
In the months ahead, inflation prints, wage data, and signs of consumer demand will be the critical indicators. A softening labor market could validate the Fed’s cuts and keep inflation in check. But if demand accelerates while supply constraints linger, inflation could prove far stickier than anticipated.
Advisors don’t need to predict whether history will repeat itself. But they do need to guide clients through an environment where the Fed’s policy path is uncertain and the inflation outlook carries more upside risk than consensus models admit.
In that context, Perkins’ analysis isn’t a doomsday forecast—it’s a prudent reminder that in wealth management, preparing for tail risks is often what distinguishes successful strategies from vulnerable ones.
The risk of stagflation may remain a minority view among forecasters. But for RIAs managing long-term client portfolios, ignoring even low-probability but high-impact scenarios can leave portfolios exposed. The prudent course is to build resilience now—before inflation surprises test both policymakers and investors once again.
