Recession fears are subsiding, and inflation swaps are pricing that inflation will be at the FOMC’s 2% target in July, see charts below. This has very significant implications for markets.
Most importantly, with inflation back at 2% within a few months, the Fed will soon stop being so hawkish. In other words, the market is telling us that the soft landing will be accomplished over the coming six months. And, if inflation in six months is no longer a problem, then the Fed put is coming back. Because then the Fed will again have the flexibility to focus on unemployment, growth, and earnings instead of focusing entirely on too high inflation.
This is all good news for credit, equity, and capital markets.
Source: DTCC, Bloomberg, Apollo Chief EconomistSource: Bloomberg, Apollo Chief Economist
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