Macro Memo: Summer is Over

The UpshotIn this article, we review:US Economy and Job MarketLong Bond Yields: Secular Meets CyclicalTariff Revenue & Bond YieldsThe Housing The Trump Admin’s Plan for Mortgage RatesMacro Trades IdeasIn our last Macro Memo, we predicted:The US economy and job market will continue to slow without breaking. [Yes]Overall inflation flat or lower despite tariff effects on goods prices. [Half Right]“The Powell Struggle” leads to fiscal - monetary Tariff uncertainty resolves [Half Right]The Fed to signal openness to rate cuts [Yes]Falling long yields to unlock housing market [Yes and No]STIR markets price more cuts into the first year of Powell’s successor’s term versus out to the end of Powell’s term [Unch]Going forward, we expect:Cyclical economic slowdown and labor market weaknessThe Trump Admin to attempt to target lower mortgage rates utilizing GSE privatization and deregulationSelf-fulfilling seasonally turbulent asset markets, equity volatility for the remainder of Q3Increasing short-term inflation concernsFed rate cut in September but uncertainty further out as Fed board composition hangs in balanceThe market is juggling between inflation and growth risks again.

Over the last three years, it seems like we’ve experienced an inflation scare every other quarter interlaced with a growth scare in between. Maybe this is just the navigation of a soft landing, but the fact that the US stock market has been on a nonstop tear since the April bottom amplifies these risks during a seasonally volatile While we continue to believe the tariff-driven inflation to be short-lived, it doesn’t matter what eventually transpires if the market is worried about tariff-driven goods inflation, its second-order in services, and non-tariff factors driving a second round of inflation acceleration.

Given these short run inflation concerns, a whiff of growth scare (like a weak jobs report), will bring back the cries of Something we’ve long debated is whether the Trump administration’s clear desire to get long bonds down is a self-defeating goal, but we believe we’ve found a missing piece - based in the fact that the admin, as the midterms approach for 2026, doesn’t really care nearly as much about treasury yields as they do about mortgage Key macro data points to watch:Sept 3 (today): JOLTS job openings, quit rates, layoff ratesSept 4: ADP job growth, Unit Labor Cost, Initial and Continuing ClaimsSept 5: S&P PMI, AHE, Unemployment rateSummer is over.

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