Is Depressed Inflation Sowing The Seeds Of Market Volatility?

Lack of market volatility tied to depressed Inflation?

A rapid, unexpected change in interest rate expectations could lead to a dramatic increase in market volatility, which will result in sell-off in risk assets according to Nomura. What would inspire such a dramatic change in interest rate expectations? The answer is simple, a rapid increase in inflation (something few analysts expect) would be the catalyst that would set off a sudden change in Federal Reserve policy.

It is no surprise that many analysts and economists have given up on inflation. After many quarters of negative inflation surprises, confidence in inflation forecasts have dwindled, and future inflation expectations have fallen. According to Nomura research analyst Kevin Gaynor, this environment has increased the risk that...