The writer is a former chief investment strategist at Bridgewater AssociatesWhile moderating inflation and more benign interest-rate expectations have helped boost markets this year, there is a more structural risk that remains under-appreciated: demographic decline.

Policymakers have recently homed in on challenges stemming from ageing populations alongside shrinking workforces. But so far, their responses are woefully inadequate to prevent higher rates of inflation and more difficult fiscal trade-offs in the years ahead. This in turn suggests a greater probability of higher interest rates, as well as more policy uncertainty that weighs on spending and investments, both a drag on cyclical assets including equities.

Demographics are often shrugged off — too slow moving, too far away. So why the policy focus now? Like many economic forces today, it comes back to the pandemic. Participation of those aged 55 and older fell sharply during Covid-19, stabilising now in the US around 15-year lows below 39 per cent. This larger than expected cut to the labour supply helped push wages up to multi-decade highs and left many companies struggling to meet production goals.