We’ve officially embarked on a very peculiar tightening cycle—one in which inflation is at levels more associated with the peak of the hiking cycle, and not the start.
It is driven by two historical shocks affecting both supply and demand, with little precedent, if any. If markets are to be believed, this hiking cycle is setting up to be much faster than the previous ones and presents a challenging environment for market participants and policymakers alike.
The strength of both household and corporate balance sheets suggest a soft landing is still possible for the Fed, but for now, bond markets appear to be signaling a more risk-adverse scenario is in store.
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