The Macro Minute: Are we at peak good news regarding inflation?

The potential peak of favorable inflation news necessitates a strategic "play action pass" from the Federal Reserve, tightening cyclically to facilitate structural easing. While August PCE data showed slowing inflation across headline, core, and super core metrics, the 42 Macro secular model suggests disinflation is unlikely to be sustained without a recession. Consequently, a high probability exists for "Paradigm D"—default via debasement—driven by a coordinated Fed-Treasury Accord 2.0 to address supply-demand imbalances in the Treasury bond market. This anticipated policy intervention, involving figures like Scott Bessent and Kevin Warsh, aims to moderate long-term interest rates. Although recent backups in the U.S. dollar and interest rates have caused international and small-cap stocks to underperform the S&P 500, a shift toward coordinated liquidity measures could trigger a substantial reversal and outperformance for these cyclical assets heading into 2027.