Institutional investors have moved to re-price the prospects of further U.S. interest-rate tightening as upside inflation risk gains prominence in market thinking, according to a Bank of America survey released on May 15, 2026.
The bank's global FX and Rates Sentiment Survey, conducted monthly, collected views from 60 fund managers overseeing a combined $869 billion in assets. The results point to a distinct shift in risk perception: participants are becoming more worried about inflation surprises in the United States, while their concern about an economic growth shortfall has receded.
Bank of America analysts summarized the trend, noting that "survey respondents are growing more nervous about upside inflation risks in the US, while appearing much less concerned about downside growth risks." That recalibration has pushed the potential for renewed Federal Reserve hikes back onto market radars.
Survey responses underscore the move. Twenty-eight percent of fund managers now say that U.S. growth is well-priced while the upside of inflation is materially underpriced - a reading that doubled from 14% in the prior month. In addition, roughly one quarter of those surveyed identified the Fed as the major central bank most likely to deliver more rate increases than markets currently assume.
Those hawkish concerns are already altering fixed income positioning. Bank of America highlights that the rising risk of additional Fed hikes is contributing to weakening conviction in "long rates" bets for the remainder of the year and to falling demand for U.S. steepener trades. In foreign exchange markets, respondents see resilient U.S. data as the primary short-term driver that could lift the dollar further.
Views across the Euro area are more divided. A 58% majority of fund managers described possible forthcoming European Central Bank rate hikes as a practical "risk management step to ensure price stability." Conversely, 31% of respondents labeled further ECB tightening as a clear "policy mistake," reflecting a split in how investors assess the region's policy trade-offs.
Sentiment on emerging markets recovered in May from multi-year lows. Fund managers moved toward a neutral-to-overweight stance on emerging market debt and expressed a preference for local currency bonds. Bank of America strategists warned, however, that worsening global geopolitical sentiment generates "concerns that the improved sentiment may have shaky foundations," suggesting the recovery in appetite could be vulnerable.
Portfolio flows also shifted in May, with institutional capital moving out of cash and into alternative allocations. The survey identified "long risk" as the market's most crowded trade at 47%, followed by "long commodities" at 22%.
Taken together, the survey paints a market environment where inflation upside in the United States is prompting investors to reconsider duration and currency exposures, while divisions over Euro area policy and geopolitical worries temper enthusiasm for a broad risk-on tilt.