Overview

• The decline in inflation at record low unemployment rates is welcome news, but there is uncertainty about how much further it will fall.  This will keep rates higher for longer and ensure full pass-through of the work done thus far.  
• A US recession is only likely if broad measures of financial conditions tighten more.  In turn this depends on the impact of full pass-through from Fed tightening on credit markets and stock prices.  
• It’s the US that is important for the direction of markets and equities seem to think resilience now means resilience next year.  However, this ignores not only the rapidly deteriorating global backdrop but also the full impact of the Fed’s tightening cycle. Investors looking for a soft landing need the Fed to begin easing soon.