Listen to a short summary of this report.     Executive Summary Investors Are Pricing In A Much More Aggressive Tightening Cycle Than At The Start Of The Year  Following last week’s sharp post-FOMC rally…

Highlights Chart 1Are Expectations Too Dovish? ​​​ The bond market is now priced for the fed funds rate to peak at 3.44% in January and then head back down to 2.79% by the end of 2023 (Chart 1). We strongly push back against…

Executive Summary We posit three conjectures about the US economy: Inflation has an easy path back to 4%, but a move to 2% will require a higher unemployment rate. It will be more difficult to raise the unemployment rate than many…

Executive Summary Bond investors can’t seem to decide whether the US economy is in the midst of an inflationary boom or hurtling toward recession. Our sense is that, while US economic growth is clearly slowing, we don’t…

Executive Summary Our recommended model bond portfolio outperformed its custom benchmark index by +24bps in Q2/2022, improving the year-to-date outperformance to a solid +72bps. The Q2 outperformance came entirely from the credit side…

Highlights Chart 1Are Expectations Too Dovish?  The dominant market narrative has clearly shifted in the last few days. The primary concern among investors used to be that the Fed had fallen behind the curve on inflation. Now…

Executive Summary An Optimal Control Policy  We could see some modest near-term downside in Treasury yields as inflation rolls over during the next few months, but we caution against turning overly bullish on bonds even if…

Executive Summary Calculating Trend Inflation  Investors should anticipate 50 basis point rate hikes at each FOMC meeting, eventually transitioning to 25 bps per meeting once inflation shows clear and convincing evidence of…

Executive Summary Bonds sold off dramatically in response to Friday’s surprisingly high CPI number. Markets are now pricing in a much more rapid increase in the fed funds rate, with some probability of a 75 bps move this week.…

Highlights Chart 1Wage Growth Is Cooling  In a speech last week, Fed Governor Christopher Waller presented the theoretical underpinnings for how the Fed plans to achieve a soft landing for the US economy.1 The Fed’s hope…