We are in a multi-dimensional shock environment with confluence of supply shocks. Anticipating U.S. growth to decelerate to around 1.5% by year-end with inflation rising towards 4% and ending around 3%, creating a stagflationary environment.

Not just one supply shock but trade shock, tariff shock, immigration shock, AI shock, and Middle East conflict all affecting US economy.

Fed likely to hold for foreseeable future as inflation moves in wrong direction. March FOMC minutes had hawkish tilt focusing on inflation above 2% target.

Most Fed policymakers appear content with balanced labor market, though Daco sees downside labor market risks as dominant.

Consumers running on fumes with real disposable income growth at 1% while spending at 2.5%, dipping into savings and credit.

Tax refunds around $300 per household will be more than offset by $350 energy shock from Middle East conflict.

Baseline case: Brent oil slides to $85 in Q3 and $80 by year-end, still $15 higher than pre-conflict. Downside risk scenario could see inflation at 4.5-5% and growth below 1%.

Notes oil was recently trading around $110 per barrel, indicating significant volatility risk.

Unusual interest rate environment with upward pressure on long-term yields from fewer Fed rate cut expectations, higher inflation expectations, and fiscal sustainability questions.

Typically geopolitical conflicts see downward pressure on yields from safe haven flows, but not this time.