Inflation/Deflation

This week’s US Bond Strategy Special Report takes a look at the two most provocative papers presented at last month’s Jackson Hole conference.

Median Fed unemployment rate projections are overly optimistic. The Fed will end up cutting more in 2026 than it currently anticipates.

China’s policy-driven constraints prevent the “destruction” part of the creative destruction process. Instead, they entrench overcapacity, deflation, and poor profitability. We are reluctant to chase the rally in Chinese stocks in absolute terms.

High US inflation is being driven by tariffs, not domestic inflationary pressure. This argues for Fed easing and a bull-steepening of the Treasury curve.