We are in a multi-dimensional framework with layers of supply shocks (tariffs, immigration, AI, Middle East). Inflationary pressures have been more persistent than anticipated. This shock will have a longer tail than a quick spike.

Focus is on core PCE inflation ending the year at 3%, well above the Fed's 2% target. The Fed will be on hold, awaiting more data on the Middle East conflict.

Most persistent price pressures are in goods segments from tariff pass-through. The energy shock will filter through to transportation, fertilizer, crop, and food prices, creating a layered shock and an income squeeze.

The consumer is increasingly under pressure from a negative wealth shock and, most importantly, an income squeeze. Real disposable income grows at 1% while spending grows at 2.5%, financed by savings, credit, and wealth.

The oil price shock has already hit households by about $350, outweighing the average $290 tax refund benefit, disproportionately affecting lower-income families.

The Fed will look at its mandates: inflation is moving away from 2%, employment is close to maximum. They will err on inflation being the greater downside risk, maintaining a marginally restrictive stance. The next move is no move for the foreseeable future.

We have a rate cut in December but for bad reasons, expecting a delicate labor market, not a balanced one.

Job growth will hover around zero in coming months, reflecting a slower underlying pace of the economy.

Oil prices won't go back to $60. Potentially closer to $75-80 by year-end. It will be a slow process; even with a ceasefire, a $10-15 risk premium will remain through year-end.