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Barriers to Exit: While many wait and hope for a Fed pause or pivot - hanging on every piece of text and utterance from the Fed - the real focus should be on inflation expectations.

Longer-term inflation expectations have started to come off the boil, but shorter-term inflation expectations continue to track near record highs.

Based on our leading indicators, growth outlook (global recession risk), and commodity market outlook (bearish in my view), inflation should come down – especially into 2023…

But there remains real risk of inflation staying elevated: when inflation expectations are this high there is a greater probability that they become self-fulfilling as the sometimes long and drawn-out process of price negotiations factor in the fear of inflation.

So you can end up getting a peak in inflation, but to a new higher plateau.

In this context it is easy to understand that central banks won’t be inclined to respond to market volatility and softer growth until the inflation side of things is clearly contained (and indeed, ultimately you need to crush growth to do that).

So I think it’s still too early to be talking about a pause let alone a pivot to easing — a pivot to easing is pure hope at this point (in lieu of a crisis). This is not March 2020.

Patience and pragmatism are required to navigate this unique macro-market environment.

Key point: Great inflation expectations are a barrier to pivot.

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