There's a ton of uncertainty, especially around inflation with higher oil prices. Inflation has been trending higher since April last year, the economy was strong going into the war, and ISM prices paid are through the roof.

Oil prices are certainly not helping. Inflation is going to be elevated for some time. Investors aren't giving that enough due. Rates probably need to go higher, and that should suck out some liquidity from the market.

Even if oil goes back to the 60s or 70s, inflation will still be well above 2%. The economy is strong, earnings growth is strong, and inflation isn't trending towards 2%.

We didn't think the Fed was going to cut going into March. If things go back to the way they were, they're still not going to cut. It's hard to envision getting to 2% inflation without a real growth shock.

If the Fed cuts and labor doesn't weaken materially, it will be a mistake punished by markets and bond vigilantes, leading to much higher rates.

We saw this in 2024 when the Fed cut 50 bps and rates went higher. Since they've cut this time, rates have generally gone higher. If they cut again given current growth and inflation, rates are going higher. Labor is most likely the fulcrum for Fed cuts, barring administrative intervention.

If the Fed cuts in the context of 3.5% inflation, rates could go well north of 5%. If we go back to pre-war conditions with inflation around 3-3.2%, then 4.5-4.75% is probable.

It's higher from here. The right side is just a matter of to what degree.