Some Like It Hot

The US labor market has reached a rare point of perfect balance, requiring the Fed to 'run the economy hot' with higher inflation to sustain growth. This macro environment favors stocks and Consumer Discretionary equities over Treasury bonds and the US dollar.

Key Takeaways

• 1.The Federal Reserve will likely allow the US economy to 'run hot' by tolerating inflation in the 2.5-3.5% range to maintain labor market balance.
• 2.US Treasury bonds are expected to underperform cash and sovereign peers due to a 'bear steepening' of the yield curve.
• 3.The US Dollar is projected to weaken further as real interest rate differentials shift.

Table of Contents

• A Labour Market In Balance Means Double Jeopardy
• Don't Bet On An AI-Driven Productivity Surge
• The Warsh Fed Will Let The US Economy Run Hot
• New Tactical Trade: Overweight Consumer Discretionary Versus Industrials
• Fractal Trading System (With Open Trades Highlighted In Green)
• Indicators To Watch - Bond Yields
• Indicators To Watch - Interest Rate Expectations

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