In this clip from today’s edition of The Macro Show, Hedgeye CEO Keith McCullough discusses his outlook for a flattening yield curve, driven by the Fed on the short-end and real growth deceleration on the long-end.
"The Fed is starting to realize what we’ve been calling for since June 2020 (and several times since then). The Fed has been behind the curve on inflation. So what’s most likely to happen here is what’s already happening. The short-end of the curve (which is signaling bullish TREND on the yield) is going up, while the long-end (which is signaling bearish TREND on the yield) is going down. I have a flattening view of the curve because that’s what my signals and models are saying; and it’s what the backtest says happens anyway during #Quad3 Stagflation," explains McCullough, highlighting his outlook for Fed policy and inflation & growth expectations.
Watch the clip below from 8/3/21, where Keith describes why the yield curve flattens during #Quad3 Sticky Stagflation.
“As the short end rises, the market gets scared that the Fed is going to F up, ‘Oh, they’re tightening into a slow down!’ That’s because they are. The Fed is late to the party on inflation, and they’ll be tightening into a real growth slow down (leading the long end lower).”