In today’s video, I review the Fed rate decision and how the bond market has boxed them into a persistently flat yield curve, leaving rate cuts as its only viable option to steepen the curve and restore balance. However, this strategy carries risks, as rising inflation expectations, stronger long-end yields, and tighter liquidity could create a “pain trade” scenario of higher rates, a stronger dollar, and weaker equities.
Daily Write-Up
I think, given the state of the yield curve, it seems clear that the Fed has little choice but to keep cutting rates, at least from the standpoint of the curve being too flat. The market still needs to do much of the heavy lifting by steepening the back end of the curve, which likely means a bear steepener will be the primary path forward.