The manufacturing cycle and AI capex are the biggest issues for rates, not next month's CPI. Higher nominal growth means the Fed must be more reactive, leading to a higher front-end and belly of the curve. Expect more volatility, especially in the front end, but it will take time to transcend the curve.

The Fed has bought time but the key takeaway is a hawkish, independent Fed willing to tackle inflation. Less forward guidance will lead to more volatility, especially in funding markets. The focus has shifted from oil to real growth data.

IG credit spreads could tighten to the 60s, not due to improving fundamentals but because corporate bonds are scarce relative to government debt. The government is borrowing much more than the corporate sector. The biggest risk is if AI monetization fails, forcing a reassessment of capex spending.

Core PCE inflation is being driven by idiosyncratic factors like airfares and portfolio management, not a wage-price spiral. Headline inflation likely peaked due to falling energy prices, but the disinflationary road will be long. The Fed should be cautious about hiking prematurely.