Oil price shock hurts growth as a tax on consumer; it's a supply-side shock with small drag but doesn't create second-order inflation threat.

We came into this shock with resilient private sector balance sheets. The Fed will be watching second-order effects. It keeps Fed from hiking, maybe from doing anything right away, but later cuts possible.

Consumer has been extremely resilient due to easy financial conditions and K-shaped recovery; upper part buffered by jobs and stock market, lower part struggling.

Resilience depends on job market; as long as layoffs stay low, consumer can withstand more shock.

Fed has dual mandate and was hit with supply shocks; bar for cuts is higher, need to see inflation improvement.

Watching core services, inflation expectations, wage inflation, and rents for comfort. Once tariff impact flows through and no second-order energy inflation effect, might get to 2.5% by year-end allowing Fed cuts.

Value created in rates market; rates rose due to inflation/deficit fears and deleveraging; owning belly of curve makes sense as supply shock is tax on consumer.

If oil prices go much higher into tail-risk scenario causing recession, Fed would cut more. As market prices non-linear growth impact, interest rates likely to decline.