Macro: Fed/Warsh transition, yields & inflation risk
Key Questions
What is the market consensus on the upcoming Fed decision?
All 104 economists surveyed expect the Fed to hold rates steady, while traders assign a 36% probability to a hike at the July 29 FOMC meeting.
Why are inflation fears resurfacing?
Oil prices above $100 combined with tariffs are reigniting concerns, even as the 10-year yield sits at 4.69% and real yields continue to rise.
What could a surprise Fed hike mean for markets?
A hike would likely pressure SPY significantly, while even a hold with a hawkish tone could increase volatility given the 8-9-1 split expected.
How is the transition to Kevin Warsh affecting Fed policy expectations?
Warsh's first policy meeting introduces uncertainty, with markets pricing higher hike odds despite broad economist agreement on a hold.
What role do tariffs play versus energy inflation?
While tariffs add noise, the primary inflation drivers remain energy and services costs according to contrarian analysis.
How are credit spreads and real yields behaving?
Both real yields and credit spreads are widening, signaling tighter financial conditions ahead of the Fed meeting.
What is the current 10-year Treasury yield level?
The 10-year yield is at 4.69%, reflecting market adjustments to inflation risks and Fed policy uncertainty.
How might the Fed decision interact with big tech earnings?
The July FOMC outcome could amplify or dampen reactions to MSFT, META, AMZN, and AAPL earnings reports due this week.
FOMC held rates steady 9-3, three dissents to hike. 30-year yield spiked to 5.2% (2007 highs), yield curve steepening. September hike more likely; odds of hold through Dec only 8.5%. New data: June PCE 3.7% (core 3.3%) in line, Q2 GDP missed at 1.5% vs 1.8% expected, confirming stagflation. Core PCE eased to 3.3% as expected. Treasury curve analysis reveals US front end now pricing alongside India—a structural sovereign credit re-rating that challenges risk-free narrative and impacts SPY discount rates. Consumer confidence dip adds uncertainty. A contrarian view from 'The New Fed' argues yields are 100-200bps too low and bond volatility is being used as a tightening tool, challenging soft-landing.