Reflation Narrative Impact on Market Expectations

The reflation narrative has broadened the distribution of expected outcomes in the market, moving it from a narrow focus around 1.5% GDP growth and core inflation at 2% to a broader perspective including a higher core PCE annualized rate around 3.5%. This shift toward reflation has flattened the right tail of the distribution curve, causing volatility by surprising the current pricing distribution. The impact of reflation has been seen in commodities and value in developed markets.