A look through prior Middle East wars suggests a potential conflict with Iran would likely be a volatile "sell the news" event. Prior conflicts most directly impacted the U.S. economy through higher oil prices and increased economic uncertainty. Fed policy focused on the growth negative impact and viewed the inflationary impulse as transitory. Risk markets reacted negatively to the buildup of the war, rallied at the outbreak and continued to rally under the impression of …
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Published on February 17, 2026 by Joseph Wang Premium
The market is significantly underpricing rate cuts as the rapid improvement of AI tools suggests a rising unemployment rate and continued disruption in the financial markets. AI tools are increasingly able to automate a range of tasks, so there will be a structural reduction in demand for certain workers. Lower employment reduces aggregate demand until the displaced workers are able to transition to other fields. AI tools also disrupt incumbent businesses, who tend to be …
Published on February 9, 2026 by Joseph Wang Premium
Japan's enormous foreign investment holdings put it in a position to both run loose fiscal policy and manage its currency depreciation risk. Prime Minister Takaichi's victory on Sunday gives her the opportunity to implement an expansionary fiscal plan that should super charge its equity markets and further accelerate Yen depreciation. The BOJ appears committed to dovish policy with real rates still negative despite above target inflation. Japan's reluctance to hike rates and desire to maintain …
Published on February 2, 2026 by Joseph Wang Premium
Warsh's quest to shrink the Fed's balance sheet implies fundamental changes in the banking system, money markets, and Treasury issuance. He would be restarting QT even through the Fed just began expanding its balance sheet to address pressures in funding market. Treasury can lean on heavier bill issuance to moderate the market impact, but they will require the cooperation of private banks to ease the funding market impact. Banks would need to increase their own …
Published on January 26, 2026 by Joseph Wang Premium
Reider's jump to front runner in the Fed chair race is surprising, but his long held views show that he is the candidate most suited to a fiscal dominant world. Reider has a long career in asset management and is political outsider without obvious ties to Trump. He makes the standard arguments for rate cuts to 3% by highlighting weakness in labor market and increases in productivity, but has thoughtful views on the role of …
Published on January 19, 2026 by Joseph Wang Premium
The President is poised to announce his pick for Fed Chairman as soon as this week and Kevin Warsh is now the leading contender. Warsh is a former Fed governor and noted hawk, but his views on Fed policy align with that of Secretary Bessent. Warsh is most notable for his long time quest to shrink the Fed's balance sheet. His argument for more rate cuts rests on an AI productivity boom, and the tightening …
Published on January 12, 2026 by Joseph Wang Premium
The Administration's willingness to conscript the Government Sponsored Enterprises in its efforts to lower mortgage rates opens up a range of possibilities that directly impact markets and the economy. Fannie and Freddie Mac once held enormous mortgage portfolios that shrank in the wake of the 2008 crisis and could be rebuilt. The Federal Home Loan Banks are a trillion dollar system that could also be more effectively deployed to provide home financing. These efforts imply …
Published on January 5, 2026 by Joseph Wang Premium
The economy enters 2026 with the support of a large influx of bank credit that suggests another year of strong economic growth. Bank credit growth has been weak the past two years amidst the historically aggressive rate hike cycle, but surged in 2025 with notable acceleration in the final quarter. While the bulk of credit is flowing to non-bank financial institutions, the end user is ultimately someone in the real economy. Overall credit quality remains …
Published on December 29, 2025 by Joseph Wang Premium
The market is underpricing the potential for President Trump to get more Fed cuts. Short term interest rate futures have consistently priced the trough of the cutting cycle at around 3%, regardless of Trump's aggressive demands or the weakening labor market. Market participants appear anchored to the median neutral rate of the Powell Fed even as there is significant reason to think the Trump Fed would have a different view. A 2.5% trough is a …
Published on December 15, 2025 by Joseph Wang Premium
A politicized Fed is unlikely to lead to higher yields because longer dated yields are becoming more connected to the expected path of Fed policy. Even without a new Chair, the Fed's party line has quietly shifted towards that of a productivity boom in line with the Administration. Powell's emphasis on employment and dismissal of inflation as transitory opens the door to deep cuts next year. Regulatory changes are tightening arbitrage relationships between Treasuries and …