Most rate changes have been short-term positioning. The key issue is how strong the manufacturing cycle continues into the second half of the year, which we believe will continue. In a higher nominal growth environment, the Fed must be much more reactive, closer to the 90s/early 2000s than post-GFC.

Inflation may pick up in the next three months due to tariff-driven buildups and China stopping export of disinflation. The most important thing isn't next month's CPI but the manufacturing cycle over the next 4-5 months.

Volatility will go higher because nominal growth is higher. The front end will see more volatility due to balance sheet dynamics and deregulation, but it will take more time to transcend throughout the curve than people expect.

We saw front-end volatility near the end of last year when SOFR was above IORB. The Fed went back to reserve management purchases. Everyone has a plan until they get punched in the face with SRF take down.

Don't underestimate how quickly people come back to the steepener due to carry. The 530 flattener reflects higher nominal growth driven by the manufacturing cycle and AI capex. AI capex numbers are bigger than the Chinese commodity super cycle. Increasing capital intensity drives the front end higher and anchors the long end.

As long as the Fed maintains credibility (which they will, by being more reactive), the front end and belly should be higher over the next 2-3 years simply because of the manufacturing cycle and higher nominal growth.