Bonds To Reverse Soon As Yields Approach 'Line In The Sand'? | Michael Lebowitz

Lebowitz argues that underlying inflation remains relatively contained, citing core CPI at 2.5%, trimmed-mean PCE at 2.3%, and breakeven expectations near 2.4% to 2.5%, while recent inflation pressure has largely reflected tariffs and an Iran-related supply shock. He says another Fed hike could be a policy mistake because inflation does not justify current interest-rate levels, although it remains above the Fed’s 2% objective.

The episode presents a weakening-growth backdrop: Lebowitz questions the latest employment report because of revisions and weak confirmation from ADP and JOLTS, and says growth may be flat to negative excluding AI-related activity. At the same time, rising intermediate- and long-term rates have already lifted auto-loan, credit-card, mortgage, and corporate borrowing costs by roughly 50 to 75 basis points, with effects potentially appearing over three to nine months.

AI could eventually support growth and disinflation, but its near-term economic effects may be inflationary because of higher memory-chip prices and massive data-center construction. AI-related borrowing by hyperscalers, combined with broader fiscal deficits, could also increase demand for debt and equity financing and pressure the bond market.

Lebowitz distinguishes bond fundamentals from market narratives: inflation expectations typically influence yields, but events such as credit downgrades can temporarily push yields higher even when long-run fundamentals suggest yields are already elevated. The host says yields are still moving higher, while Lebowitz’s default outlook is for yields to trend lower over the next couple of years toward the economy’s real growth rate.