Markets Happy Hour Podcast May 15, 2025 - Live from NYC - A Fever Dream?

In this week's podcast we reflect on what some commentators have described as a "fever dream" - the essential round trip of US markets since the beginning of the year, whereby they have recently made up lost ground - despite tremendous month to month and intra-week volatility. So should we proceed as if the past few months - including the post Liberation day crisis - never happened?

We first look at the hard data - inflation is subdued although this may be a temporary state pending the effect of tariffs. When parsing the data further, it becomes clear that some of the fall in inflation is due to the fall in service inflation, which is not directly subject to tariffs, so may be more sticky as a contributor. This lower inflationary environment now mirrors that of Europe and the UK, and could, in theory allow some space for the Fed to ease. There is, so far, no sign of that however, and we discuss what may become a different "framework" in which the Fed may operate in its decision making going forward.

Interest rate cuts seem to be further out on the horizon for now though as expectations have come down and the bond market takes things into its own hands - sending the yield on the 10 year treasury to over 4.5%. Upon analysis, the Big Beautiful tax bill looks set to spook bond investors further as it is likely to add to the fiscal deficit, thanks to a generous swathe of cuts, and this lack of fiscal discipline could well stoke fear in an already wavering market for US dollars.

Moving to market conditions we reflect on the fragile nature of the news flow that is sending markets into overdrive (e.g. soundbites without detail on trade) and the still busy set of geo-political headlines, in a week where President Trump's visit to the Middle East dominated the discussion.

We were delighted to be joined by Jon Cheshire, who works with Clearbrook Consulting, on this podcast and thank him for his many contributions to the discussion.