Policy

May CPI data show no evidence of passthrough from energy prices to core inflation. This will keep the Fed on hold for the time being.

Midterms matter but geopolitics are the main risk this year. Markets will eventually refocus on geopolitical and inflation risks, raising Fed rate hike odds and supporting US dollar and stocks over global counterparts this year.

The AI boom will increase inflation in the near term and could also raise it over the long term. The Fed’s reluctance to hike rates is understandable, but it risks amplifying what may already be a brewing stock market bubble. 

Our Portfolio Allocation Summary for June 2026.

In Romania, large fiscal and current account deficits, high inflation, negative real rates, an overvalued exchange rate, and deteriorating growth point to budding currency devaluation. Investors should short the Romanian currency versus the euro and underweight Romanian local bonds, equities, and sovereign credit.

The April CPI report showed clear evidence of the direct effect of higher oil prices on inflation but, so far, limited evidence of passthrough to core.

Improving job growth keeps Fed rate cuts off the table, but evidence of labor market tightening will be required before rate hikes become part of the discussion.

Our Portfolio Allocation Summary for May 2026.

FOMC participants are coalescing around the idea that the funds rate will stay on hold for some time, an outcome that is now well priced in the bond market and that will not materially change under a new Fed Chair.

The rates market is moving back into a low vol regime, but with yields at a higher level. This argues for maximizing carry across the Treasury curve.