Q1 GDP comes in much weaker than expected, PCE deflator suggests hotter inflation than expected. Deffo think this market is still underpriced

If sovereign default/restructuring risk is high, would the fed balk at raising rates because failed attempts would reveal low demand for Treasury bonds?

Higher gas and rents keep US inflation elevated, likely delaying Fed rate cuts

There is a large discrepancy between the 18% here and some probabilistic models:

https://www.newyorkfed.org/research/capital_markets/ycfaq.html#/interactive
https://fred.stlouisfed.org/categories/33120

@schlongenheim Thanks for the second link. The first I think is pretty well known.

@schlongenheim the Sahm indicator is declining because unemployment is falling. Unemployment has to rise quickly for the Sahm indicator to increase, and it is doing the opposite of that. Just because it's high now doesn't mean a recession is imminent - it's not getting higher at the moment.

Don't know what that probabilistic model is or how it works, but there's no way there's a >50% chance of a recession. Is it just predicting rate cuts based on the yield curve? We know there will be rate cuts, but rate cuts are sometimes because the Fed is done dealing with an inflationary crisis and doesn't want to cause a recession by leaving rates high, they're not always because a recession is actually happening.

@chrisjbillington Does it look like inflation will come down enough to cut rates without a recession after the last 3 months? Also forward looking indicators such as NFIB hiring plans suggest a rapid cooling of the labor market, and the oil price spike will further add pressure for producers to cut costs.

@riverwalk3 what do you mean "cut rates without a recession"? Cutting rates decreases the chances of a recession. Cutting rates is what you do when the risk of a recession is high, or after one has already started. Cutting rates is the treatment for recessions, not the cause.

If inflation isn't coming down fast enough, they'll hold off cutting rates. Holding off for too long indeed can cause a recession. But if you agree that inflation being higher than expected warrants holding off on rate cuts, then you presumably agree that the risk of holding rates high causing a recession is not too high.

If you think a recession is coming, you should be arguing for rate cuts!

@chrisjbillington I mean that the only scenario where the Fed cuts rates is a recession with inflation remaining high and commodities skyrocketing.

Oil starting the squeeze, up 8.4% this month

@IsarBhattacharjee inflation hotter than expected- fed likely to keep rates up for longer

@IsarBhattacharjee Whilst this is true it doesn't really point to a recession. Inflation falling faster than expected would mean demand had collapsed. Inflation being higher than expected at the moment is likely pointing to the economy running too hot - the opposite of a recession.

It's true that high rates can cause a recession if they're held too high or high for too long. But given the economy is still running somewhat hot (I mean - 3.5% inflation is is not that bad), it's clear the fed has not (yet) done that. It remains to be seen if they can stick the landing, and today's inflation print doesn't really tell us anything except that they have not overcooked the rate hikes yet.

@chrisjbillington it's supply driven cost push (oil) combined with services inflation

Will drive big repricing over the next 2 months

We won't have to wait too long to see

@chrisjbillington Stagflation is possible

@IsarBhattacharjee Commodities are rising very quickly but the CPI still shows goods deflation right now. They will eventually show up as goods inflation. Even if services inflation such as shelter comes down this will still lead to inflation too high this year to cut rates.

@riverwalk3 yep agree

I already have positions on these two markets

https://manifold.markets/JonathanRay/will-the-next-change-to-the-fed-fun?r=SXNhckJoYXR0YWNoYXJqZWU

https://manifold.markets/jacksonpolack/will-the-us-enter-stagflation-by-th?r=SXNhckJoYXR0YWNoYXJqZWU

@IsarBhattacharjee I caution that stagflation by the market description is hard. 4% inflation is possible, but 1.5% GDP is hard simply because of all the momentum in the last few quarters (which feed into this year’s GDP). Even if GDP comes at 0% for all 4 quarters this year, we get 1.4% growth, and first quarter is likely around 2.5%, meaning that we would have to be at like -1% for the rest of the year for this to happen.

@riverwalk3 isn't the NBER Business cycle set quarterly? in that case the description would warrant resolving yes at is says enter a recession at any point which a -1% in Q4 would certainly be

@LeonardoKr or was it two consecutive negative quarters needed to qualify for recession,don't remember

@LeonardoKr Yeah it would be a recession but 2024 GDP growth would still be at least 1.5%

@riverwalk3 which isn't the question we're betting on, or what was the point you we're trying to make?

@LeonardoKr I am talking about the stagflation market that Isar linked.

More?

@Joshua hahaa sure I'll buy some more - I'm basically an unlimited buyer up to my liquidity for anything under 20% until I see strong evidence that changes my thesis

I am buying No

@Joshua Happy to help

@Joshua wise bet

@RanaG haha let's see

@IsarBhattacharjee We should find a shorter term version to bet on, payout will take forever here

@Joshua mate it's commodities driven

Rate expectations adjusting already + Japan will have to intervene on the yen which will kill the carry trade

It can all move extremely fast