Introduces Ken Shinoda to discuss the Fed's bind between a weakening labor market and completely uncertain inflation.
Romaine Bostick
Ken Shinoda
The Fed thought it could cut rates, but the oil price spike means they likely can't cut this year. Unless the Middle East conflict resolves, the Fed will be on hold.
Ken Shinoda
The market initially tried to look through the energy shock, but it's lasting longer than anticipated. Equities have been surprisingly resilient, but more volatility is expected if it continues.
Asks what the rise in the two-year yield, now at its highest since the war began, tells us about trader psychology.
Romaine Bostick
Ken Shinoda
The front end of the yield curve is pricing in a lack of cuts. The two-year can't rise meaningfully unless inflation is seen staying high for many years, which longer-term breakevens don't suggest.
Ken Shinoda
Even if Kevin Warsh becomes Fed Chair, he must fight the Fed's mandates. If inflation is high, he can't cut 100 bps. The Fed will be data-dependent.
Asks about comfort level with borrowing to fund AI capex, given low returns and high uncertainty.
Romaine Bostick
Ken Shinoda
AI capex borrowing is in early innings but will become a meaningful part of debt markets. DoubleLine is avoiding exposure until spreads compensate for the uncertainty.