The Fed Is Hiking Into A Growth Slowdown | Weekly Roundup

The speakers describe an unusually hawkish Fed hiking cycle emerging as growth may be peaking, with personal-income growth slowing from about 10% to roughly 6–7% and withholding growth to about 4–5%. They debate whether hiking with the 10-year yield near 5% is a forced policy mistake, particularly as roughly $300 billion–$400 billion of temporary stimulus may not be renewed and mortgage rates remain near highs.

Market pricing was indicating roughly four Fed hikes by mid-next year versus guidance centered around two, while the speakers argued that foreign-exchange, bond, and commodity-market intervention may have delayed an equity correction that could otherwise have reduced the AI bubble. They also described October as underpriced, adding to the episode’s emphasis on policy and market risk.

The episode links weakening real wages—falling from roughly 2% growth before the war in Iran to about six months of negative growth—to slower nominal wages and higher inflation. The speakers warn that a commodity shock could pass into wages and services, while rising diesel prices and reports of stations running out of diesel were cited as visible signs of economic stress.

Europe is portrayed as facing a potentially prolonged adjustment, with political crises possibly beginning in France and Germany and extending to an existential Eurozone debt crisis. The comparison with Japan around 2012 is described as potentially decade-long, but Europe lacks Japan’s favorable starting conditions and must manage fragmented national bond markets that complicate ECB intervention.

The speaker argues that a much weaker euro could improve the viability of European industrial exports, automobile production, and tourism while encouraging reshoring, defense spending, and industrial investment. Consistent with that view, the suggested expressions include long U.S. dollar/short euro and long Brazilian real/short euro positions, although the economic outcome remains uncertain.