Labor Market

Expectations for US inflation at 3.3 percent are inconsistent with expectations for the Fed to slash rates, so one of these expectations is likely wrong. We describe how to play this mispricing. Plus, a new position is to go overweight global consumer discretionary (RXI).

Our Portfolio Allocation Summary for August 2025.

We maintain our 12-month US recession probability at 60%. However, until the “whites of the recession’s eyes” are more clearly visible, we would refrain from moving to a fully defensive stance.

Economic activity and hiring cooled significantly in the first half of the year. The most important question for investors is whether this signals an imminent increase in labor market slack.

In Section II, Jonathan reviews the US fiscal outlook in the wake of the passage of the OBBBA.

In Section I, Doug weighs the recent reduction in trade uncertainty against the clear signs of labor market and consumer weakness. In Section II, Jonathan reviews the US fiscal outlook in the wake of the passage of the OBBBA.