Introduction: Why Inflation Is Back in the Spotlight

Inflation has been one of the most pressing economic concerns of the past three years. After the Federal Reserve’s aggressive interest rate hikes, many forecasters expected price growth to stabilize and fade into the background. Yet, according to macro research firm TS Lombard, there are growing risks that the U.S. could experience a surge in Inflation reminiscent of the late 1960s. This possibility raises the specter of stagflation — a scenario where high prices collide with slow growth, posing a nightmare for policymakers and investors alike.

Business Insider recently reported that TS Lombard’s Dario Perkins believes the Fed may be making the same policy missteps that set the stage for runaway Inflation more than half a century ago. By cutting rates too soon while the demand side of the economy is strengthening, the central bank could unintentionally fuel price spikes. If correct, the U.S. could be headed toward another era of economic turbulence.

The Historical Parallel: Lessons from 1967

The late 1960s were a period of economic optimism in the U.S., but they also contained the seeds of a painful inflationary cycle. The Federal Reserve began cutting rates in 1967, worried about weakening labor markets. However, demand soon surged, partly due to fiscal stimulus linked to the Vietnam War and social spending. The result was a sharp uptick in Inflation that persisted throughout the 1970s, culminating in double-digit price growth by 1980.

“The Fed could be cutting into a reacceleration, with echoes of the late 1960s.” — Dario Perkins, TS Lombard

The lesson here is clear: premature monetary easing in an environment of supply shocks and rising demand can be dangerous. Just as the Fed misjudged conditions in 1967, today’s policymakers may also be underestimating the risks of stoking renewed Inflation.

Why Inflation Could Rise Again in 2026

TS Lombard highlights four main factors that could contribute to a new wave of Inflation as early as 2026:

• Pent-up demand: With tariffs and job market uncertainties weighing on spending in 2025, households may unleash a surge of consumption once conditions stabilize.
• Fed easing: Lower interest rates could quickly stimulate housing, consumer goods, and other rate-sensitive sectors.
• Global central bank easing: Coordinated monetary loosening around the world may further amplify demand and global growth.
• Fiscal stimulus: Policies from the Trump administration, including elements of the “One Big Beautiful Bill,” as well as fiscal spending in countries like Germany and China, may inject significant demand into the global economy.

Taken together, these forces could create the perfect storm for rising Inflation, particularly if supply-side constraints remain in place due to tariffs or geopolitical shocks.

Sticky Inflation: Why Policymakers Should Be Worried

Unlike typical recessions, where cutting rates and stimulating demand can help restore growth, stagflation ties policymakers’ hands. If Inflation remains elevated while growth slows, the Fed cannot rely on its usual tools. Rate cuts risk worsening price pressures, while hikes risk deepening the slowdown. This dual bind made the 1970s one of the most challenging decades for central banks in modern history.

The Market Reaction So Far

Investor sentiment reflects growing uncertainty. The CME FedWatch tool recently showed a decline in the probability of two more rate cuts by year-end, falling from 73% to 63%. At the same time, the chance that the Fed will hold rates steady increased from 8% to 14%. This shift underscores the market’s skepticism about how much easing is feasible in the face of stubborn Inflation.

Bond yields have also been reacting to the possibility of stickier Inflation. Higher long-term yields suggest that investors expect price growth to remain above the Fed’s 2% target for longer than anticipated.

Comparing 1967 to Today

While the structural conditions of today’s economy differ from those of the late 1960s, there are striking similarities:

1. Policy timing: Both periods feature rate cuts amid lingering supply shocks.
2. Political influence: In both eras, political pressures encouraged fiscal expansion and interference in monetary policy.
3. Global environment: Then, as now, external shocks (Vietnam War vs. global tariffs) added volatility to supply chains and costs.

Although inflation today is not running at the double-digit levels seen in the 1970s, even a moderate resurgence of Inflation could destabilize markets and weaken consumer confidence.

The Role of Tariffs and Supply Shocks

One key difference between 1967 and today lies in the role of tariffs. As TS Lombard’s Perkins notes, negative supply shocks tied to tariffs have helped suppress demand in 2025. Yet, as global trade realigns, these same forces could morph into price accelerators. Tariff-led price pressures remain a “wild card” that could either ease or exacerbate Inflation depending on political outcomes.

Globalization, or rather its partial reversal, is thus a major driver of uncertainty. Supply chain reconfigurations, geopolitical tensions, and reshoring efforts all contribute to a more inflation-prone environment than in the disinflationary decades of the 1990s and 2000s.

What Investors Should Watch

For investors, the possibility of renewed Inflation means adjusting portfolios with caution. Key areas to monitor include:

• Energy prices: Traditional energy demand could rise if green initiatives lose momentum, feeding directly into consumer prices.
• Housing market: Already showing signs of recovery, housing could amplify demand-side pressures if rates remain low.
• Wage growth: Labor markets may remain tight, contributing to cost-push Inflation.

Defensive assets like commodities, inflation-protected securities, and select equities with pricing power may serve as hedges in such an environment.

Conclusion: A Dangerous Path Ahead?

Inflation remains the pivotal issue for the global economy heading into 2026. While most forecasts are optimistic, TS Lombard’s warnings highlight how fragile the situation truly is. If the Fed cuts rates into strengthening demand, the U.S. could see a repeat — albeit less severe — of the stagflationary cycle that began in 1967. The combination of monetary easing, fiscal stimulus, and supply-side shocks could prove combustible.

Ultimately, whether or not the U.S. enters another stagflationary era depends on policy execution and the trajectory of global trade. For now, Inflation is not just a fading headline — it is a risk that could shape markets and economies for years to come.