Macro D’s piece explores a far bigger question than whether the Fed will cut or hike rates. It examines the evolving relationship between Kevin Warsh, Donald Trump and the Federal Reserve, asking whether monetary policy can remain truly independent and effective under these conditions. We discuss why markets may be misreading Warsh’s strategy, why abandoning forward guidance could prove to be one of the most significant shifts in modern central banking, and what it means for investors navigating a world where uncertainty may no longer be a bug—but a feature.

The implications extend far beyond the next FOMC meeting.

Read on.

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You know, I am no big fan of holiday souvenirs. I get it; some people love a memento from the places they visited. Mostly tacky things. You won’t find me browsing airport gift shops for a miniature landmark, a novelty T-shirt or another coffee mug that will spend the rest of its life gathering dust in a cupboard.

There is, however, one exception.

Fridge magnets. I know what you think, but to me they’re a genius invention, and I’m a bit obsessed with them. Yes, my fridge and oven are littered with them.

What fascinates me is that magnets don’t simply preserve memories. They attract.

Every one of them takes me back to a place, a restaurant, a conversation, or a moment in time. They’re not really souvenirs at all. They’re reminders of experiences, quietly pulling me back to memories I had long forgotten.

And that’s not dissimilar to our memories and scars in financial markets. It’s not only our past experiences that matter; they also draw us towards reacting in similar ways when we encounter familiar conditions again.

Markets have their own magnets. Every few weeks, investors become irresistibly drawn towards a single event. An inflation report. Payrolls. A central bank meeting. Earnings season. As the date approaches, almost everything else fades into the background as conversations begin to orbit around one question.

This week, that magnet is the July FOMC meeting.

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Only a few weeks ago, the idea of another rate hike seemed almost unimaginable. Today, a growing number of economists and investors are openly debating whether Warsh should raise rates once again. Personally, I think there is a respectable case for doing so. Inflation has proven more persistent than many expected, financial conditions remain relatively loose, and the Fed has repeatedly argued that credibility matters.

Whether they ultimately hike or not is, in many ways, almost irrelevant.

Isn’t it funny? Markets have an uncanny ability to become magnetised by a single event, as if everything hinges on one decision. Yet we all know that, in the grander scheme of things, the world is unlikely to look materially different on Thursday morning whether the Fed hikes or not.

When was the last time an FOMC meeting felt this uncertain? September 2024 comes to mind, when the Fed cut 50 bps following a weaker payrolls report. At the time, it felt monumental. Looking back, many would argue it was an overreaction and ultimately the wrong decision. But none of that mattered in the moment. The market had found its magnet.

By Thursday morning, it will have found another one.

We don’t get to choose what captures the market’s attention, but we do get to choose whether we are pulled in with it. As investors, we constantly have to decide what truly matters. Do we allow ourselves to become magnetised by the next headline, or do we zoom out, let the attraction pass, and focus on the bigger forces that will still shape markets long after this week’s FOMC has faded into memory?

Let’s now get down to business and do what we always do when faced with another trading week ahead

• Look at Macro D’s latest thoughts and his detailed Macro FX Book & Trades.

• Analyse the Macro Calendar ahead

• Revisit the latest dashboard output and signals captured by our models

• Unveil the asset allocation model’s latest asset preference.

As a reminder, all our models/strategies and daily dashboard/signals are now housed in pa-globalmacro.com, a place only members have full access to.

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I love it when markets take protagonists to a battle. Warsh will have to show his true colours. Smooth talking is one thing, but markets require more than that. The market beast wants to know what you are really about. After a CPI/PPI double-whammy washout, markets decided that July was too early for a rate hike and even priced September at just above 50% odds.

Since then, Oil has ripped, and front-ends globally have adjusted higher with 10-year yields back at their May highs. July is now pricing a decent chance of a hike. As said, markets like to punish indecision and impose their opinions. The July FOMC will be one of those events. The open interest of the July (August Fed Funds Futures) meeting is now 40% of all Fed funds contracts.

I had the pleasure of attending a macro event with other investors. Most of them don’t anticipate a hike in July but see the need for adjustment later in the year, even if that means a 50 bps adjustment. Many even expressed the view that the spot data is irrelevant as we are still dealing with a backlog of unfinished inflationary business. Fair points.

Meanwhile, we have a bit of trouble in AI-land. Google’s negative free cash flow sent a few waves into a spin. Rightly so. Are stocks caught in a crossfire of policy and rate sensitivity while earnings are being questioned? Hard to disentangle all relevant factors. I was arguing for a bit of an equity drawdown simply based on sentiment and some of the chart/momentum indicators we have received from our daily dashboard overview.

Will the Fed matter? A 25 bps hike, in a vacuum, may not have a big impact on risk assets, but when coupled with the forced re-widening of the right tail of the US rate distribution and increased rate volatility, it will absolutely hit equity sentiment, which will, in turn, impact the AI complex.

Oh yes, we, of course, have geopolitical tensions flaring up again. Given prior experiences, we now have a good indicator of when Trump might reverse course once again and smooth it all over. The chart below isn’t updated for today’s moves, but I would say we are now closer to a reading of 5. Stay tuned.

Below, behind the paywall, I share Macro D’s latest thoughts on the week gone by and any changes he is considering for his Macro FX book. There are many moving parts, and I am of the view that things will get spicy from here. I shared my thoughts in the Substack Chat with members on Wednesday, anticipating a more violent market. Timing has been good.

Alongside my views, our market technical engines work daily, informing our members of the most important macro developments. The summarised dashboard (see below) gives members a quick overview of the technicals of 200+ securities, from equity indices to FX, rates and crypto.

As a member here, you get access to the full toolset of our offering at pa-globalmacro.com. This goes beyond the dashboard summary and includes a detailed chart book for every security covered, a signal dashboard of major changes, a sector rotation map of US sectors, the 2026 buy-and-hold portfolio, which has started to outperform once again and the weekly bond and equity models. And there is more to come.

I am still running a 20% discount on subscriptions until the end of the month, so you have a week still to subscribe and benefit.

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For rates market geeks, I have put together a comprehensive view of the major developed market STIR/Money market curves and examined some possible expressions. More on it in the post below.

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I have been curious about relative pricing in STIR-land and wanted to put together some trade thoughts for my readers after carefully analysing the market. Today’s post runs the full rates strip across USD, EUR, GBP, JPY, NZD, AUD and CAD, all benchmarked to 3 March, the first full session after the Israel-US-Iran conflict widened and Brent lurched from USD 72 towards 120. That baseline matters. Everything the curves have done since then has been a referendum on one question: is this an adjustment to an energy shock, or the start of a cycle?

The curves answer differently by currency, and that’s where it gets interesting. Some of them agree with their respective central bank. Some of them are arguing with it. I’ll show you which is which, quantify the carry on offer for taking either side, and finish with a few trades I am considering. It’s a bit rates-geeky, so I hope some of you will enjoy the conclusions.

For those less versed in the world of short-term interest rates (STIR) and OIS (overnight index swaps), I have written an educational piece that, as always on this site, is absolutely free.

If you are considering joining the pack of members, I am still running a 20% discount until the end of July. And yes, you get the full dashboard, strategy and daily chart pack on top of it over at pa-globalmacro.com.

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Let’s now dig in.

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Playing Not to Lose

The World Cup final is upon us and, like millions around the world, I am eagerly awaiting who will lift the trophy tonight. Could this be Messi’s last dance on the biggest stage? I have a feeling Argentina might just find a way. Whatever the outcome, both teams have played with heart, conviction and a willingness to keep attacking when it mattered most.

The English nation is still coming to terms with another painful semi-final defeat. It brought back memories of 2018 against Croatia. England took the lead early, only to gradually retreat into an increasingly defensive mindset before eventually being punished. Much of the criticism since has centred on the tactics, and rightly so in my view. Why would you spend almost forty minutes trying to protect a one-goal lead against arguably the best player in the world and a team that has repeatedly shown it can come back from behind?

Playing not to lose is rarely rewarded.

Not in football, not in life and certainly not in markets.

That does not mean taking reckless risks or abandoning discipline. Quite the opposite. It means recognising when the environment demands engagement rather than hesitation. There are simply too many important cross currents shaping markets today to sit on the sidelines waiting for complete clarity.

As macro investors we never receive certainty. We deal in probabilities, constantly adjusting our views as new information arrives. And right now there is certainly no shortage of it.

In this week’s detailed thought piece for subscribers, I look beyond the headlines to examine why today’s macro environment is becoming increasingly difficult to navigate—and why remaining engaged, rather than waiting for perfect clarity, may prove to be the winning strategy.

For paying members, I cover:

• Why the renewed escalation between the US and Iran matters far more than oil prices currently suggest, and why the world has become structurally more fragile.

• Whether markets are celebrating a single soft inflation print too enthusiastically, and why I still believe the September FOMC meeting remains very much alive.

• How the AI investment story is evolving, from software into energy, infrastructure and geopolitics, and why the next winners may look very different from the last.

• The key investment implications for navigating a world shaped by geopolitical fragmentation, inflation uncertainty and rapidly changing technological leadership.

In addition, as per usual in ATW, we then cover the following items.

• Macro D’s latest thoughts and Macro FX trade spreadsheet

• Weekly Macro Calendar / Outlook

• Dashboard Analysis

• Asset Allocation Model Update (now fully running on pa-globalmacro.com)

A reminder that I am running a 20% discount on subscriptions until the end of July. As a member on here, you have automatically access to the analysis, models and strategies on our dedicated website at pa-globalmacro.com.

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Let’s go!

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Of course, a single element or factor in isolation is usually not solely responsible for triggering an event. A few ducks need to align. It was interesting to observe the technical side and the continued drawdown in the KOSPI, as well as the somewhat sluggish behaviour in the Nikkei this and last week. Our dashboard and charts over at pa-globalmacro.com hinted that a rally was losing steam, a trend also confirmed by our asset allocation model, which has passed on allocating to stocks over the past few weeks. The model, for all subscribers, is now also available on the site and updated weekly.

I have been eyeing up a correction for a few weeks now, and I am happy to see it slowly developing. Aside from global cross-reads, this week also showed that stocks couldn’t rally properly on weaker inflation prints. What historically would have jolted markets higher proved very short-lived. Of course, the ongoing geopolitical scare in the Middle East is not helping.

Have we finally run out of bullishness?

Not so fast. The well-documented earnings boost was a good reason for stocks to rally, but that’s now well-digested. Markets move from narrative to narrative, and I think we might have just run out of the old story, even as we are just about to enter earnings season, which many expect to be solid. Markets top before earnings top. That’s just how it is.

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I think we are entering a healthy correction. Below the paywall, I analyse historical patterns of correction and subsequent recoveries. Every 10% drawdown produces the same argument: is this the top, or is this the entry? Nobody knows in real time, but the base rates are knowable, and better to have them before the next one arrives than to look them up halfway down.

I’ve catalogued every drawdown of 5% or more that occurred inside six major equity bull markets without ending the advance: the Nasdaq in 1995–2000 and 2016–2021, the Nikkei 1985–1989, the Shanghai Composite 2005–2007, the S&P 500 2009–2020, and the current Nasdaq run from its December 2022 low to 15 July 2026.

The question I most wanted answered: Is the current Nasdaq drawdown unusually shallow compared with history?

Answers below. We will also hear from Macro D, who will reflect on the trading week and the new Macro FX trades he engaged in.

Investing and trading aren’t meant to be easy, and we are mostly our own worst enemies. In a newly launched series of reflections on self-mastery, I am offering a first glimpse into the psychology of ourselves and the pitfalls most of us fall into. I made the post free, as is the ethos here for all educational pieces.

Enjoy!

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You can have the sharpest macro framework on the planet, the best models, the best chart setups, the most privileged information flow. None of it matters if you can’t master the person staring back at you in the mirror. And here’s the uncomfortable truth: you never fully get there. It’s a never-ending journey. But that’s precisely the beauty of it.

This post is the first in a new series in which I will dive deep into the psychology and self-examination of the investor. What works, what doesn’t, and why so many of the best traders in the world employ coaches to guide them, sometimes ruthlessly, on that journey. We’ll explore frameworks, habits, pitfalls, and the science behind it all. Consider it a companion series to everything else I write on macro and markets. Because ultimately, the most important position you manage is the one between your ears.

Let’s start at the beginning.

Don’t Fool Yourself

Richard Feynman, the legendary physicist, once said something that every investor should tattoo on their forearm. His first principle of intellectual honesty was simple: you must not fool yourself, and you are the easiest person to fool. He delivered this in his famous 1974 Caltech commencement address, warning against what he called “cargo cult science”, the illusion of rigour without the substance.

Now Feynman was obviously talking about science, not trading. But the parallels are breathtaking. How many of us have held a position, watched it turn against us, and then constructed the most elaborate narrative about why it will come back? The confirmation bias, the selective reading of data, and the clinging to a thesis that has long been invalidated by price. We build cargo cult portfolios. They look sophisticated, smell sophisticated, but underneath, there’s no intellectual honesty whatsoever.

Feynman believed that true understanding required a relentless pursuit of objective truth, unhindered by personal desires or emotional attachments. He would rather admit he didn’t know something than believe in false knowledge. Replace “knowledge” with “market view”, and you have a pretty solid operating manual for any investor.

I reflected on my own behaviour throughout my career, and I can honestly tell you that the moments of greatest loss were not due to having the wrong thesis. It was because I refused to update it. I fooled myself. And I was indeed the easiest person to fool.

The Coaches

If Feynman laid the philosophical groundwork, a handful of practitioners turned it into actionable frameworks for the trading floor.

Dr. Ari Kiev was a psychiatrist who spent years working with Olympic athletes before Steve Cohen brought him into SAC Capital in the 1990s. His work there produced several books, most notably “Trading to Win”. Kiev’s approach was built on a set of philosophical and behavioural principles designed to help traders function in what he called a “tense, unstructured, and unpredictable environment”. His ten cardinal rules are a masterclass in self-awareness. Among them: be an independent thinker, find a way to manage your emotions while maintaining objectivity, and, crucially, work continuously to improve yourself, recognising that your personality and how you respond to events are a critical part of the game.

Kiev understood that most traders are not sabotaged by the market. They are sabotaged by themselves. By hope, by fear, by the need to be right, by the ego that refuses to take a loss. His later work in “The Psychology of Risk” explored how traders can overcome the psychological obstacles that undermine decision-making, particularly the pathological patterns of risk-taking that emerge under stress.

Mark Douglas took a different but complementary path. His “Trading in the Zone” is arguably the most referenced book on trading psychology, and rightly so. Douglas had a fairly brutal personal experience. He went bankrupt early in his career, which gave him a firsthand understanding of the emotional minefield. From that experience, he developed what many consider the foundational mental framework for consistent trading. His five fundamental truths are deceptively simple: anything can happen, you don’t need to know what’s going to happen next to make money, there’s a random distribution between wins and losses for any given edge, an edge is nothing more than a higher probability of one thing happening over another, and every moment in the market is unique.

Read those again. Slowly. Most people nod along but don’t actually internalise them. If you did, you would never revenge-trade, never freeze in the face of a loss, never overtrade after a winning streak. Douglas’s core insight was that the skills we acquire in virtually every other aspect of life, the need for certainty, the desire to be right, the avoidance of pain, these turn out to be entirely inappropriate for trading. The market requires a completely different mental operating system.

What the Best Traders Actually Do

When you study the interviews with the greats, whether through Jack Schwager’s Market Wizards or the countless conversations available today, a pattern emerges. And it’s not about their systems.

Ed Seykota, who turned $5,000 into $15 million over 12 years, put it most directly: psychology motivates the quality of analysis and puts it to use. Psychology is the driver, and analysis is the road map. Seykota went so far as to found The Trading Tribe, a group dedicated to processing the emotions that sabotage traders: fear, greed, pride, and frustration. His view was that your bottled-up, unexpressed feelings are your actual trading system. People who can’t feel their feelings end up acting them out in their positions.

Paul Tudor Jones, who famously shorted the 1987 crash, has always stressed that defence wins championships. Every day, he assumes every position he has is wrong. That’s not pessimism. That’s radical intellectual honesty, he applied to markets. Jones once said that if everyone spent 90% of their time on risk management rather than on how much money they’re going to make, they would be incredibly successful investors.

Stanley Druckenmiller, who ran Soros’s Quantum Fund, was equally direct: good investors are successful not because of their IQ but because of their investing discipline. Ray Dalio built Bridgewater on principles of radical transparency and systematic self-reflection, constantly stress-testing not just his portfolio but his own thinking process.

The common thread? Self-awareness, emotional regulation, intellectual humility, and the willingness to be wrong. Not one of them credits their success primarily to their analytical prowess.

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What the Science Says

This isn’t just trader lore. The academic literature is building a compelling body of evidence around this very point.

A landmark study by Fenton-O’Creevy and colleagues examined professional traders in London investment banks using heart rate variability (HRV) as a measure of emotional regulation. Their finding was striking: there was a significant positive relationship between HRV and trader experience, suggesting that emotion regulation is an important facet of trader expertise. More experienced traders showed better physiological regulation during high-volatility periods. In other words, the seasoned pros weren’t calmer because they cared less. They had learned, over years of practice, to regulate their emotional responses to market stress. That regulation itself was a core component of their edge.

A related NBER working paper by Lo, Repin, and Steenbarger measured the emotional states of day traders and found that those with more intense emotional reactions to gains and losses exhibited significantly worse trading performance. Interestingly, their standardised personality inventory did not reveal any specific “trader personality profile”, raising the possibility that trading skills may not necessarily be innate. Different personality types can perform equally well after proper training. The implication is powerful: psychology isn’t something you’re born with for trading. It’s something you develop.

Further work published in the Journal of Organisational Behaviour found that traders deploying what psychologists call “antecedent-focused” emotional regulation strategies, essentially reframing situations before emotional responses take hold, achieved materially better performance than those using “response-focused” strategies, like suppressing emotions after the fact. Suppression, it turns out, doesn’t work. You can’t just bottle it up. You have to change how you perceive the situation in the first place.

More recently, a study in Management Science using physiological data confirmed the importance of what researchers call “anticipatory emotional engagement”. Traders whose heart rate changes anticipated their order submissions performed significantly better than those who merely reacted emotionally to trades after the fact. The best traders are emotionally engaged, but ahead of the game. They feel the market, but they are not consumed by it.

The Traits Worth Mastering

So what does all this add up to? If I were to distil the lessons from Feynman’s intellectual honesty, Kiev’s coaching frameworks, Douglas’s probability mindset, the wisdom of the trading legends, and the academic evidence, I’d land on a handful of traits that are worth spending a lifetime working on.

Self-awareness is the foundation. You cannot fix what you cannot see. Journaling, what I call the “MC” (main courante), is the single most underrated tool in any investor’s arsenal. A log of your decisions is the necessary tool for your reflection. Without it, you are in the dark about both your pitfalls and your strengths. Kiev echoed this: look at the stats, discover your trading patterns.

Emotional regulation is a daily practice. Not suppression. Regulation. There’s a massive difference. Suppression leads to blow-ups. Regulation means acknowledging the emotion, understanding what’s driving it, and choosing a response that aligns with your process rather than your feelings. Meditation helps here. I used to think it was a hoax. It isn’t.

Intellectual humility is what keeps you alive. The market doesn’t care about your thesis, your credentials, or your ego. Ego kills, sooner or later. That is certainly true in the money-making business. The willingness to say “I’m wrong” and act on it immediately is probably the single greatest predictor of longevity in this game.

Probabilistic thinking is the operating system. Douglas nailed this. Once you truly accept that every trade is a probability, not a certainty, the emotional sting of individual losses diminishes dramatically. You stop needing to be right. You start needing to follow your process. The casino doesn’t cry when someone wins at the roulette table. It trusts the edge over a large enough sample.

Discipline and routine are the scaffolding. Daily routines keep me focused and on track. I hit the gym, I meditate, I review. These aren’t luxuries. They are risk management practices for the mind. Tudor Jones, Seykota, Douglas, Kiev, all of them stress that consistency in preparation is non-negotiable. The best guys, as Kiev observed, have proved out marginal ideas, concentrate on strengths, and measure performance relentlessly.

Patience is the silent compounding machine. Seykota warned that trying to trade during a losing streak is emotionally devastating, and trying to play catch-up is lethal. Jesse Livermore’s key insight, perhaps the most expensive lesson in trading history, given how many times he made and lost fortunes, was that patience and waiting for high-probability setups matter more than activity. The best money is made sitting, not clicking.

The Never-Ending Journey

Here’s what makes this topic simultaneously frustrating and beautiful: you never arrive. I am clearly far from finished, and I suspect the best traders in the world would tell you the same. The market is the ultimate teacher because it constantly finds new ways to test your character. Every new market regime, every drawdown, every euphoric rally reveals a different corner of your psyche that hasn’t been stress-tested yet.

Kiev worked with traders for decades and still found new patterns. Douglas spent his entire career on the subject and acknowledged that even experienced traders regress. Feynman, for all his brilliance, framed his entire worldview around the acceptance that uncertainty is permanent.

And that’s the point. The journey into yourself is the investment with the highest compounding return you will ever make. There is no terminal value. There is only the next iteration of a better, more self-aware you. Dig deep into analysing what needs to change to make it a success. As for investing, go even deeper and find out who you really are. It is worth it.

What’s Next

This is just the opening act. In upcoming posts in this series, I will be exploring specific aspects of the self-mastery journey in more detail. We’ll look at why so many top traders and portfolio managers employ coaches, what those coaching relationships actually look like behind closed doors, and why the best ones are ruthlessly honest rather than comforting. We’ll dig into what works and what doesn’t when it comes to building mental resilience, from journaling and meditation to the structured self-review processes used by some of the world’s most successful investors. And we’ll examine the dark side too: the traps of overconfidence, the psychology of drawdowns, and why some people who are brilliant analysts are terrible investors.

If this resonated with you, I’d love for you to stick around.

For those looking to go deeper into macro strategies, market analysis, and the broader knowledge base I’ve been building over the years, I invite you to join PA - Global Macro. It’s where I share my models, trade ideas, chart work, and a growing library of resources designed to help you on your own investing journey. Whether you’re just starting out or have been at this for years, there’s something in there for you.

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Come explore. The best investment you can make is in yourself.

Music

This one felt right for the mood of this piece. Caamp “By and By”. There’s something about his fragile, introspective delivery that mirrors the vulnerability required to truly look at yourself. No pretences, no bravado. Just raw, honest expression. If you’re in a reflective state after reading this, put it on. Let it sit with you for a while.

The problem is that markets often become most vulnerable when everyone starts telling themselves the same story.

The consensus heading into this week’s CPI release is for a benign report. In fact, some of the economists with the strongest forecasting records are looking for an even softer core reading than the Bloomberg consensus. Residual seasonality, falling gasoline prices and some favourable base effects should help produce a headline that markets will undoubtedly welcome.

I would not be surprised if they are right.

But I would also argue that investors risk drawing the wrong conclusion from the right number.

Let’s dig in.

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Everything we do as human beings serves a purpose. Whether we recognise it or not, we are all driven by something: a need, a promise, a responsibility, an ambition or simply the desire to make ourselves useful. It is easy to forget that trading and investing are no different. They may look like purely financial pursuits, but beneath the surface, there is usually something much deeper at work.

So what is the purpose of trading?

I have the pleasure of working with a number of subscribers on a one-to-one basis. Founding members have access to six private sessions with me each year, and most use them to refine their investment process, discuss their career trajectory or get an outside perspective on markets and portfolio construction. Yet when I ask what ultimately drives their pursuit of trading or investing, many struggle to articulate a clear answer.

I was no different.

The obvious answer is to create wealth, achieve independence and provide for our families. Those are important goals, but they are still outcomes rather than a purpose. Money is what may result from the pursuit. It does not necessarily explain why we are willing to devote so much of ourselves to it. Why not do something else instead?

Throughout my career, I have observed that the best and most consistent investors are rarely defined by how they react to individual wins or losses. They are driven by something more enduring. For some, that purpose is spiritual. For others, it is rooted in identity, self-worth or the desire to test the limits of their own potential.

“To become the best version of myself.”

“To discover who I really am.”

There is something almost absurd about the idea that one of the highest-paying professions in the world can reward you for discovering who you are. Yet there is also a great deal of truth in it. Markets expose your character. They reveal your impatience, fear, ego, discipline, aggression, humility and capacity to live with uncertainty. You can hide these traits from other people, but you cannot hide them from your own P&L for very long.

For me, the purpose has increasingly become one of self-mastery. It is about becoming the best investor I can be, given my own psychological make-up, risk tolerance, temperament, strengths and limitations. It is not about turning myself into someone else.

I realised relatively early that I did not need to become Soros, Druckenmiller or Paul Tudor Jones. I will never trade exactly as they did, because I am not them. Nor should that be the objective. The only worthwhile benchmark is whether I can become better than the investor I was yesterday, last year or a decade ago.

That improvement compounds. Better decisions lead to better habits. Better habits create a better process. A better process gives you a greater chance of fulfilling your own potential. If, at the end of the journey, I can say that I came close to becoming the best version of myself, that will be enough.

In absolute terms, that matters far more to me than how I compare with anybody else. It should matter more to you as well.

That is also the purpose of this publication: to make both me and my readers better investors by sharing education, frameworks, models, strategies, and honest reflection. Not to manufacture certainty, and certainly not to pretend that there is one correct way to trade, but to help each of us build a process that is more rigorous, more self-aware and more suited to who we really are.

The mission is clear.

The only question is whether you share the same vision. If you do, I would suggest joining the pack.

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I will have more thoughts on the elements above. As I am nearing 3 decades of investing as a career, I will share some of my most important reflections and lessons with readers in the coming months.

Let’s now look at what we do before every trading week: check the calendar, analyse the latest dashboard output, review Macro D’s latest work and trading results in his Macro FX book, and check the latest asset allocation output.

Let’s go!

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London was gripped by another heatwave, but that doesn’t matter as everyone is hyped for tomorrow’s game against Norway. The tennis is on, people are looking to depart on holidays - should we be surprised that the Vix exhibits seasonally lowest readings in July? It shouldn’t.

I find it interesting, however, that implied correlations are at new lows. Below you see the 1-month implied correlation and the VIX in blue.

For those who don’t know, the VIX measures how much the S&P 500 index is expected to move. That index-level vol is a function of two things: how much individual stocks move and how correlated those moves are. If every stock swings 20% but in random directions, the index barely budges. If they all swing together, the index explodes. The CBOE Implied Correlation Index captures that second component — the market’s expectation of how much stocks will herd.

The 1-month implied correlation (COR1M) is currently printing around 3.5. Meanwhile, single-stock implied vol (VIXEQ, see chart below) sits near 50 while the VIX is under 16. That spread — now at record levels — is the dispersion trade in full bloom. Funds are short index vol and long single-stock vol, profiting from the divergence. The trade suppresses the VIX mechanically while individual names gyrate wildly underneath.

This matters because extreme lows in implied correlation have consistently preceded VIX spikes. The mechanism works like a coiled spring. Correlation drops to extremes. Dispersion trades pile up. Then a macro catalyst hits, and stocks that had been moving independently start to correlate again. The dispersion trade unwinds. The mechanical bid under the index vol evaporates. The VIX doesn’t drift higher. It jumps.

July 2024. COR1M was at similar extremes. What followed was roughly a 10% drawdown in the S&P and 16% in the Nasdaq over 3 weeks as the yen carry trade unwound and correlations spiked.

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One more detail. The cushion between implied and realised vol — the premium option sellers rely on — has compressed to almost nothing. On a recent session, the implied actually printed below realised. That almost never happens outside of stressed environments.

Falling correlation doesn’t cause VIX spikes. But extreme lows are the dry tinder. The match can be anything. With the Iran conflict seemingly unresolved, oil rising again, and inflation dynamics still in flux, the question is when, not if. When correlation snaps back from these levels, the low VIX will look like the mirage it was.

The SOX Index chart below seems to be signalling that some volatility is still to pass. I am closely following the moves and preparing to engage.

I have more thoughts on equities, rates and macro markets below. As always, subscribers have full access to our range of models and strategies at pa-globalmacro.com. It features a dashboard that is updated daily and linked to the daily signal alert system, which scans reversals and momentum shifts across the tracked universe of roughly 200 securities we are currently observing.

For current members, please note that to receive email notifications, go to your account settings and select which reports you wish to subscribe to.

In addition to some further macro thoughts, we have my loyal friend Macro D opine on the week just gone by and how this influences his risk-taking in Global FX markets. Annoyingly, his PC crashed over the weekend due to a corrupted hard drive, which seemingly cannot be rescued. If any of our readers has a good suggestion on how to recover some files, etc, please let us know below! Amazingly, Macro D still found ways to convey his thoughts to us. Where there is a will, there is always a way!

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Wishing you all an enjoyable weekend. For football fans, it will be a fantastic few evenings and early mornings. If you are undecided, give it a cheer for England! It’s so coming home …

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The latest turn in Westminster is not just another personnel change. It arrives at a time when the UK is already living with an uncomfortable macro mix: weak growth, sticky inflation, high debt, fragile confidence and a gilt market that has become far less willing to give politicians the benefit of the doubt. This is no longer the old world in which investors could be soothed with warm words, vague ambitions and another committee review. The UK now has to convince buyers of its debt that ambition and discipline can still coexist.

That is the real issue beneath the political noise. Britain does not merely need a new prime minister, a new chancellor or a new slogan. It needs a credible answer to a much harder question: how do you revive an economy without frightening the very markets that must finance the revival? The temptation will be to promise more spending, more investment, more fairness and more growth. The problem is that the gilt market will want to see the invoice.

Below the paywall, I look at why the UK remains one of the most important macro fault lines in developed markets. The focus is not only on Westminster but also on the interaction among politics, fiscal credibility, Bank of England policy, inflation risk, and long-end gilts. The market is not yet screaming, but it is no longer asleep either. And when a country with the UK’s debt profile, growth problem and political instability starts testing the patience of global investors, the curve usually tells you before the politicians do.

The question for investors is therefore simple, but not easy: is the UK approaching a moment of renewal, or another episode in which ambition collides with arithmetic? For now, I remain wary. The opportunity may eventually be significant, but so is the risk that Britain once again discovers that markets can tolerate many things — but not fiscal fantasy dressed up as a growth strategy.

Let’s explore.

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First, let me start this Sunday note by wishing my US readers the very best of times on this celebratory weekend. Two hundred and fifty years is no small milestone, and whatever one’s politics, market views or macro anxieties, it is worth pausing for a moment to recognise what the United States has represented, achieved and inspired over that period. So, happy 250th birthday to America. Here is to another 250 years. As a special offer, I am introducing a 20% discount on annual subscriptions for July. Click the link below.

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I have always had a deep fondness for the US. A trip a few years ago broadened my view of the country in a way that stayed with me. It reminded me that America is not just about the big cities and financial centres. It is the sheer scale of the place, the variety of its landscapes, the energy of its cities, the warmth of its people and, yes, the amazing food that still somehow surprises me when I think I have seen it all.

Every country has its problems, and the US clearly has its own. It would be foolish to pretend otherwise. But I remain in awe of what the American spirit really entails. There is a positivity you are greeted with almost everywhere, a belief that tomorrow can be better than today, and a unifying identity that people seem able to apply regardless of where they, their parents or their grandparents came from. That is rare. It is also easy to underestimate from afar, especially when the noise of politics, markets and media becomes overwhelming.

As macro investors, we spend most of our time dissecting what can go wrong. We measure fragility, we decompose growth, we worry about funding channels, we argue about reaction functions, and we try to locate the point at which optimism becomes complacency. But sometimes it is worth remembering that the same country capable of producing excess, imbalance and bubble-like behaviour is also the country that has repeatedly reinvented itself through waves of innovation, capital formation and entrepreneurial risk-taking.

That brings me to this week’s work.

Below the paywall, I take a deeper look at the current balance of US growth and, more specifically, the increasingly important role of AI-related capital spending. The purpose is not to write another breathless AI piece. There are enough of those already. The aim is to step back and ask a more macro-relevant question: what is actually driving US growth at the margin, how unusual is this composition, and what happens if one very powerful engine begins to dominate the rest of the economy?

To do that properly, we need to look beyond the headline GDP number. Growth is not just growth. Its composition matters. A consumer-led expansion, a government-led expansion, an investment-led expansion, and an export-led expansion all carry different implications for markets, inflation, rates, credit and the durability of the cycle. The US consumer still dominates economic activity, but that is not the same as saying the consumer dominates the marginal impulse. That distinction is at the heart of the analysis.

I also look back at previous capex expansions and how they have shaped the US growth profile over time. The post-war economy has seen different engines take the lead at different moments: consumption booms, government surges, housing cycles, technology waves and investment manias. Some capex cycles broadened into productivity and durable growth. Others created powerful but unstable impulses that eventually required a period of digestion. The current AI buildout needs to be understood in that historical context rather than viewed in isolation.

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The central question is whether today’s AI capex wave is simply another investment boom or the early stage of a broader productivity cycle that eventually feeds into the rest of the economy. That difference matters enormously. If the spending broadens, the US may once again prove that betting against its ability to innovate is a dangerous game. If it remains concentrated, import-heavy and increasingly dependent on continuous funding, then the economy’s growth mix becomes more fragile than the headline numbers suggest.

As always, I try to frame this in scenarios rather than certainties. The US has a remarkable ability to surprise to the upside, but macro investors cannot live on national admiration alone. We need to understand where growth is coming from, which parts are sustainable, which parts are cyclical, and which parts are vulnerable if financial conditions tighten or corporate confidence shifts.

So, on this 250th birthday weekend, the message is twofold. America remains extraordinary, and the spirit that built it is still visible in its people, its companies and its willingness to take risk at scale. But the market question is whether the latest wave of risk-taking — this AI-driven capex expansion — becomes the next great productivity chapter or simply another powerful but narrow growth engine.

That is what we explore below, in addition to the usual lineup of Macro D’s latest FX spreadsheet and performance, the weekly calendar, the latest dashboard analysis and the output of the asset allocation model.

Let’s go!

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Tremors never happen in isolation. JGB’s have seen another leg higher now breaking out from their May highs with new steepening pressure infecting pretty much all global markets with it. Gold and commodities (excluding Oil) seem to have been forming a base, while the Dollar has retraced following the somewhat weaker jobs numbers yesterday. USDJPY has seen a washout, with some banks suggesting that an intervention might be on the cards soon. I will only believe it when I see it. The BoJ has an almighty task: convincing both bond and currency holders. Good luck.

For a detailed view of all things related, from technicals to sector rotation, please visit our dedicated site at pa-globalmacro.com, where I have made my models and strategies available to subscribers. There is more coming.

The dashboard, for example, includes 200 securities with indications ranging from momentum strength to reversal probabilities, as well as a performance tracker showing the P&L since the signal was initiated.

The sector rotation map shows the relative performance and glide paths of US sectors, helping us track potential rotations. Currently, as you see, technology is losing momentum while quite a selection of other sectors are taking over

During the week, we published two important pieces. The first is the comparison of Greenspan’s era to what we likely can expect from Warsh.

The second one is the monthly Macro FX Trade Corner piece written by my loyal friend and macro brain, Macro D, who has kindly updated us on his latest thinking and includes 5 new trades from his book, which has had a tremendously successful first half, printing around 37% YTD.

Below the paywall, you will find his latest thoughts on markets and the week just gone by.

Have a wonderful weekend, and to all my American friends, have a great July 4th celebration. Party hard and enjoy.

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This month’s edition contains five new FX trades, each accompanied by detailed macro reasoning, entry levels, stop losses and profit targets. As always, the emphasis is not on predicting every headline, but on identifying asymmetric opportunities where policy, positioning and market expectations have begun to diverge.

Markets remain headline-driven, and conviction can evaporate overnight. That makes flexibility more valuable than certainty. This month’s Trade Corner reflects exactly that approach, focusing on relative opportunities rather than broad directional bets, while remaining ready to adapt as the macro landscape evolves.

Subscribers can access the full analysis, complete trade rationale and our ongoing performance tracking below.

Let’s explore.

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As a young macro trader, I grew up watching Greenspan command almost mythical authority over investors. Today, with Kevin Warsh attempting to redefine the Federal Reserve’s relationship with markets once again, his legacy feels more relevant than ever.

Macro D is not writing an obituary. It is a reflection on what made Greenspan different, why his philosophy still matters, where he ultimately got it wrong, and why the Fed’s quiet move away from forward guidance may represent the most significant shift in central banking since his era.

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The BIS annual report is the closest thing the central-banking world has to a collective worry list, and this year’s is pointed. The argument, stripped down: the very forces that delivered all that resilience — the AI capital boom, easy financial conditions, a sovereign-bond market that always seems to clear — have quietly become the system’s principal amplifiers. The airbags, in other words, are now part of the crash risk.

Three things sit at the centre of it. The AI build-out and the way it is being financed. A government bond market whose plumbing has changed beneath everyone. And an inflation backdrop in which supply shocks, not demand, now set the regime.

I’ve gone through all three chapters so you don’t have to, pulled out what actually matters for a macro book, and turned it into a hopefully easy-to-read summary post: where I think the risk is mispriced, how I’d express it, and the handful of signals I’m watching to know when the markets turn.

Let’s dig in.

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I hope you all had a fantastic weekend. As I am back in the saddle and more glued to my screens, I couldn’t help notice how equities have started to trade oddly. There are huge intra-day swings, on no news, and this is not only visible in US stocks but also in some Emerging Market indices. According to GS, they have seen the largest net selling of global equities in three months. Interestingly, the US info tech sector has seen the largest net selling in over a decade.

In many ways, the markets are always trying to tell us something. Often, of course, it is just noise. This time, however, I think there is more subtle messaging being broadcast. It all comes back to my observations around the Fed and Warsh’s new reigns. I think that markets are adjusting to a world of new constraints. I think investors are still underestimating how different the second half of this cycle may look.

While I am not yet entirely convinced that the “new” Fed has completely changed its clothes, I am open to reassessing my view given what markets are telling me. Warsh’s first FOMC meeting represented a potentially meaningful shift in the Fed’s reaction function towards restoring price stability. I still believe the communication was encouraging, but after spending several decades analysing central banks, I have learnt to place considerably more weight on actions than words. Institutions rarely abandon deeply ingrained habits overnight, particularly after more than a decade in which markets were repeatedly conditioned to expect monetary policy to cushion every growth scare, equity correction or financial accident. One unanimous meeting, a shorter statement and less forward guidance do not constitute a new regime. They simply increase the probability that one may be emerging.

Fortunately, macro investing is not about being right all the time. It is about continuously updating probabilities as new information arrives. We can hold multiple competing views simultaneously and gradually adjust them as markets reveal new information. My base case remains that the Fed has not yet fully escaped the post-GFC mentality of protecting growth and financial conditions. However, I also have to acknowledge that markets are increasingly behaving as though they believe otherwise. The rally in longer-dated Treasuries, the repricing at the front end, and the resilience of the dollar all suggest investors are beginning to assign a higher probability to a Federal Reserve prepared to tolerate slower growth if that is what restoring price stability requires.

Importantly, that does not automatically imply structurally higher bond yields. In fact, improved central bank credibility can more effectively anchor inflation expectations and ultimately support longer-duration assets. The bigger change lies in the reaction function itself. For years, investors assumed that weaker growth, softer equities, or falling oil prices would inevitably prompt an easier monetary policy. That assumption is becoming less certain. Lower energy prices undoubtedly help headline inflation, but they do little to address the broader inflationary forces embedded in the economy. Services inflation remains sticky, nominal demand continues to hold up remarkably well, while tariffs, supply-chain frictions and persistent wage pressures continue to complicate the disinflation story. If anything, the hurdle for rate cuts may now be considerably higher than markets have become accustomed to.

I will share further thoughts below, along with my more structural investment implications. In the meantime, we follow our regular framework as we enter a new week. In particular, we have the following items on today’s agenda:

• Macro D’s latest Macro FX spreadsheet & thoughts

• Weekly Macro Calendar

• Macro Dashboard Analysis

• PAAM Asset Allocation Model Update

let’s go!

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Talking of boring outcomes, as I wrote last Friday (see post below), the market’s initial interpretation of the FOMC as a meaningful hawkish shift has now been largely unwound. More than a week later, the message from price action is clear. US 10-year Treasury yields are now trading below their pre-FOMC levels, erasing the post-meeting repricing almost entirely.

The biggest driver has been commodities. Oil has continued to retrace following the ceasefire in Iran, while broader commodity markets have softened materially. The Bloomberg Commodity Index (BCOM) has now fallen back close to levels last seen before the conflict began. With one of the market’s biggest inflation fears fading, inflation breakevens have eased and nominal yields have followed suit. Markets have once again demonstrated how quickly geopolitical risk premiums can evaporate once headlines disappear.

The curve, however, tells a more nuanced story. Yield curves have flattened as the front end remains comparatively sticky while longer maturities rally. That makes perfect sense to me. Markets still have little conviction regarding the reaction function of the “new” Federal Reserve. Chair Warsh’s first meeting undoubtedly shifted the tone of communication, but one meeting does not establish a framework. Investors are still trying to determine whether the emphasis on price stability represents a genuine structural change or simply a more hawkish starting point that reverts to the familiar playbook whenever growth softens. You know my thoughts: The Fed has not changed its colours overnight. Forget it.

Cross-market rate differentials continue to do much of the heavy lifting. European and UK government bonds have outperformed Treasuries over recent weeks, widening relative yield advantages in favour of the US and helping underpin the dollar’s recovery. Much of the recent dollar strength has been less about renewed US exceptionalism and more about relative rates moving back in America’s favour as overseas curves rally even harder.

So, where from here?

Seasonality is becoming increasingly important. We are entering the heart of the northern hemisphere summer, a period that typically brings thinner liquidity, lower realised volatility and fewer meaningful macro catalysts. That does not necessarily mean markets become quiet—summer has produced plenty of surprises over the years—but absent a major geopolitical shock or a significant inflation surprise, realised volatility tends to compress while investors increasingly focus on harvesting carry rather than chasing large directional themes.

Carry remains the dominant strategy across much of the hedge fund and institutional universe. Whether in FX, fixed income or credit, investors continue to be paid to own yield while waiting for the next macro regime shift to emerge. That environment can persist for longer than many expect, particularly if inflation continues to moderate and central banks remain comfortably on hold.

For me, the bigger question remains whether markets are once again becoming too comfortable. Volatility has fallen quickly, geopolitical risk premiums have disappeared almost overnight, and financial conditions continue to ease despite central banks insisting policy remains restrictive. That combination rarely lasts indefinitely. Summer may well become a period of collecting carry, but history suggests that it is often during these quiet periods that the foundations for the next major move are laid.

No matter what, we will continue scanning markets and prepare for what’s ahead. If there is one universal truth in markets, it’s that you should never be too complacent.

It’s now nearly 3 years since I opened my own approach, thoughts and models to paying subscribers, and I’m quite astonished how fast time has flown. I’m humbled by the reception and following I have received, and I am particularly blessed that some of my earliest backers are still with me today.

We have grown considerably since then, and with that, I have kept pace by producing free educational content and making my models and strategies available. The yearly buy-and-hold portfolio, for example, which I launched in 2022, is still beating the SPX comfortably over that time horizon, with considerably less volatility. This was particularly evident this year during the war period. Long may it last.

All of my models and strategies have moved to a dedicated site over at pa-globalmacro.com, which features the above portfolio and details, the daily dashboard of momentum and reversal indicators, a daily signal dashboard of any meaningful changes and the entire single security chart book spanning more than 200 securities, from single-name stocks, rates, FX, commodities to crypto. Paying subscribers on here have full access to current and future releases of the offering, which I will be expanding soon. There is an option on the site to subscribe only to those models, which will not include the Substack offering.

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You know, three years ago, I wrote the following sentence in this publication before I launched paywalled content.

You know, 630 articles later, I think I have achieved that for my subscribers so far, and I want to thank you all wholeheartedly for your support in making this journey a wonderful experience. Let the good times roll.

Below the paywall, we have my loyal friend and contributing member, Macro D, provide his thoughts on the macro week just gone by and what, if any, changes he has made to his Macro FX portfolio.

Let’s go and enjoy a wonderful weekend.

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I’m now back from my travels, and I hope you are all enjoying the summer solstice if you are based in the northern hemisphere. While fighting off the jetlag, I’m scanning charts and reading a few research reports to plan the week ahead. There is, admittedly, not much going on, but I have noticed some subtle changes.

I have laid out my Warsh thoughts in Friday’s thought piece, and nothing has changed my stance. See details below.

When scanning markets, one of the more fascinating aspects is not that equities continue to grind higher, but how little investors seem to care about everything happening around them. Over the past few months, we have traded through a regional banking crisis, a Japanese bond-market scare, Liberation Day, a war in the Middle East, the temporary closure of the Strait of Hormuz and now what may prove to be the most meaningful shift in Federal Reserve communication policy in over a decade. Despite all of that, the S&P 500 continues to make fresh highs, and implied volatility remains remarkably subdued. Looking only at the index level, one could be forgiven for concluding that markets are extraordinarily stable.

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The reality beneath the surface looks rather different. What strikes me is not the resilience of the AI story, but how ownership of that story continues to evolve. Investors are no longer simply buying the obvious mega-cap beneficiaries. Capital is moving deeper into semiconductors, power infrastructure, data centres and Asian supply chains. In many ways, the AI story is becoming broader rather than narrower. The secular thesis remains intact, earnings revisions remain supportive and corporate investment spending continues to point towards a multi-year cycle. If anything, conviction around AI appears stronger today than it did six months ago.

The challenge, however, is that everybody knows it. Hedge fund leverage has climbed sharply, semiconductor allocations have reached record levels and positioning throughout large parts of the AI ecosystem has become increasingly crowded. That does not mean the trade is wrong. Some of the most profitable trades in history were crowded because the underlying thesis was fundamentally correct. What it does mean is that market behaviour increasingly becomes driven by positioning and flows rather than purely by fundamentals. Markets can remain directionally right even as they become structurally fragile.

That is why I think many investors are missing what is actually happening underneath the index. While headline volatility remains low, factor rotations, sector moves and single-stock reactions have become increasingly violent. We continue to see aggressive leadership swings and sharp repositioning beneath a seemingly tranquil surface. The index looks calm, but the market itself feels considerably less stable. It is a distinction that has become increasingly important this year.

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What also stands out is how quickly investors have moved on from geopolitics. Oil has already surrendered most of its war premium, and speculative positioning has rapidly shifted back towards outright bearish bets. The market appears to have concluded that the Iranian conflict was little more than a temporary interruption. Perhaps that assessment ultimately proves correct. Yet markets often dismiss risks immediately after they materialise, while obsessing over them beforehand. The lesson from the conflict may not be the impact on oil prices themselves, but the reminder that relatively small actors can still create significant disruptions through strategic chokepoints and asymmetric means.

More broadly, I suspect (and hope) that we are witnessing the return of macro as a dominant market driver. For much of the last decade, investors operated in an environment where central banks worked tirelessly to suppress uncertainty. Every speech, every projection and every dot plot existed partly to reduce volatility and guide expectations. If Warsh follows through on his rhetoric, that world may be changing, although I remain sceptical. A more credible Federal Reserve is likely to be a less predictable Federal Reserve. Every inflation print, payroll report and FOMC meeting becomes more consequential when investors are no longer handed a detailed roadmap of future policy decisions.

Ironically, that may ultimately be a healthier outcome. Markets often confuse predictability with stability. They are not the same thing. A central bank that responds quickly to emerging risks may create more short-term policy uncertainty, but it may also reduce the probability that larger policy mistakes become embedded in the economy. The path of rates may become less predictable, while inflation's path becomes more stable.

For now, I remain struck by the extraordinary calm that surrounds markets. The macro backdrop is shifting, policy frameworks are evolving, leverage is rising, and positioning is becoming increasingly concentrated. Yet investors continue to behave as though very little has changed. Perhaps they are right. But increasingly, I find myself wondering whether the market’s greatest source of risk is not what investors worry about, but what they have stopped worrying about altogether. Solstices and equinoxes sometimes bring a shift in change in market behaviour. I stand ready.

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Let’s now read Macro D’s latest thoughts and study his latest Macro FX trades in the updated, detailed spreadsheet. We then scan the weekly calendar before walking through the latest global macro dashboard readings, which subscribers can access on our dedicated site at pa-globalmacro.com. We conclude the piece with the latest output of the asset allocation model. Details of the model’s workings can be found in the detailed piece below.

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For most of my professional life, I have spent an inordinate amount of time analysing central banks and their reaction functions. Like many macro investors, I became accustomed to dissecting every FOMC statement, every ECB press conference and every speech delivered by a voting member somewhere on the conference circuit. Entire teams of economists would spend hours debating whether a single word had become more hawkish or dovish, while markets attempted to reverse engineer reaction functions that often appeared as complicated as the economies they were supposedly trying to manage.

Over time, however, I have increasingly come to the conclusion that central banking has become far too complicated, far too communicative, and, perhaps most importantly, far too confident in its ability to forecast the future.

The rise of forward guidance was largely a product of necessity. Following the Global Financial Crisis, central banks found themselves trapped at the zero lower bound. If rates could not be cut much further, policymakers sought alternative ways to influence financial conditions. Expectations became a policy tool. Rather than simply setting interest rates, central bankers attempted to shape the entire future path of policy through forecasts, projections, speeches and increasingly detailed reaction functions. The theory was straightforward enough. If markets believed what central banks would do tomorrow, financial conditions could adjust today. There is some truth in those assumptions.

What started as an emergency measure gradually evolved into an institutional obsession.

Every quarter brought a fresh set of forecasts. Every meeting generated new projections. The famous dot plot became one of the most scrutinised charts in global finance, despite being nothing more than a collection of individual guesses about an unknowable future. Policymakers repeatedly reminded investors that monetary policy was not on a predetermined path, yet simultaneously published documents that encouraged markets to believe exactly that. The contradiction was obvious, but somehow became accepted as normal.

The result was that central banks increasingly became prisoners of their own communication. Every forecast became a commitment. Every projection became a benchmark against which future decisions would be judged. Every deviation required explanation. The more guidance policymakers provided, the less flexibility they retained. Rather than enhancing policy effectiveness, excessive communication often reduces policymakers’ room for manoeuvre.

This is one reason why I found the reaction to Kevin Warsh’s first meeting somewhat surprising. Having read some post-FOMC analyses, I was struck by how many commentators treated the changes as revolutionary. To my eyes, very little of substance changed. The statement became shorter. Some of the ritualistic language disappeared. Forward guidance was scaled back. The emphasis shifted away from forecasting a path and towards delivering an outcome. Frankly, most of this simply looked like common sense returning after a long absence.

The dot plot, in particular, has always struck me as one of the stranger inventions of modern central banking. Markets became obsessed with a handful of projections despite knowing full well that policymakers themselves routinely changed their minds as incoming data evolved. Investors treated the dots as promises while central bankers insisted they were merely forecasts. Neither side truly believed the distinction. The entire exercise created an illusion of precision that was never actually there.

What makes this even more relevant today is that the frameworks underpinning forward guidance were largely developed during a very different macroeconomic regime. The post-crisis world was characterised by secular stagnation, chronically weak inflation, low productivity growth and repeated demand shortfalls. Central banks spent much of the decade attempting to convince markets that rates would remain lower for longer. In that environment, communication itself became a policy instrument.

Today’s world looks very different. Inflation is no longer permanently dormant. Fiscal policy has returned. Supply shocks matter again. Geopolitical fragmentation, tariffs, energy disruptions and demographic constraints are increasingly important drivers of economic outcomes. We are trying to apply frameworks developed for one regime to a world that increasingly resembles another. Unsurprisingly, the results have been mixed.

One aspect of the recent shift that I do find encouraging is the recognition that central banks do not need to explain every thought process to markets. A credible central bank should not have to. In fact, the most effective monetary regimes often rely less on communication and more on credibility. If investors genuinely believe that policymakers will deliver price stability over time, markets themselves do much of the heavy lifting. Expectations adjust, yields move, and financial conditions tighten or ease without policymakers having to provide a detailed roadmap for every future meeting.

In many respects, central banking drifted well beyond its original mandate over the past fifteen years. Policymakers increasingly found themselves discussing financial stability, wealth inequality, climate risks, asset prices and a host of other issues. Meanwhile, inflation reminded everyone that preserving the purchasing power of money remains the primary responsibility of a central bank. The more objectives policymakers attempt to pursue with a single instrument, the greater the likelihood that they ultimately fail at several of them simultaneously.

That said, investors should be careful not to mistake changes in communication for changes in behaviour.

While some of the old frameworks may finally be disappearing, institutional habits tend to survive far longer than policy documents. The same central bank remains in place. The same intellectual biases remain embedded in the institution. The same preference for caution remains. The same tendency to wait for overwhelming evidence before acting remains. While some observers have interpreted the recent changes as evidence of a more hawkish Federal Reserve, I am not entirely convinced. The furniture may have changed, but the occupants remain largely the same.

Indeed, I suspect one consequence of reduced forward guidance may be that markets themselves assume a greater role in setting financial conditions. Less communication inevitably creates more uncertainty. More uncertainty encourages markets to do what they are supposed to do: price risk. Bond yields can rise, risk premiums can widen, and financial conditions can tighten without policymakers having to deliver a single rate hike. In many respects, that is exactly how the system should function.

This is where I think markets are currently sending a message that policymakers may not yet fully appreciate. For years, I have viewed the US two-year Treasury yield as one of the best real-time indicators of where policy rates should be. It aggregates the views of investors, businesses, economists and institutions far more efficiently than any committee forecast ever could. While it is not perfect, it often provides a cleaner signal than the central bank itself.

Today, that signal appears relatively straightforward. The bond market is increasingly questioning whether the three rate cuts delivered last year were justified. Growth remains resilient, labour markets remain firm, and inflation remains more persistent than policymakers anticipated. If one were looking purely at the underlying macroeconomic backdrop, there is a reasonable argument that some of that easing should be reversed.

Will it happen? I am not so sure.

If the past several decades have taught us anything, it is that central banks are often slow to recognise changes in regime and even slower to reverse course. The Federal Reserve spent much of 2021 insisting inflation was transitory before spending much of 2022 trying to catch up with reality. That experience should have reinforced the limits of forecasting and the dangers of excessive confidence. Instead, many policymakers continue to behave as if sufficiently sophisticated models can eliminate uncertainty.

They cannot.

The lesson from the past twenty years is not that central banks need better forecasts. They should place less faith in them. The lesson is not that policymakers need to communicate more. They should communicate more clearly and less frequently. Most importantly, the lesson is that monetary policy was never meant to provide certainty about an uncertain future.

The best central banks are not those that tell markets exactly what will happen next. They are the ones that retain sufficient flexibility to respond when reality inevitably proves them wrong. The recent shift in communication may represent a step in that direction. Whether it ultimately produces a different reaction function remains an entirely separate question.

For now, I remain sceptical. The old framework may be disappearing, but I suspect the institutional dovishness that defined much of the past decade remains alive and well. The bond market appears to be telling policymakers that rates should probably be higher. Whether the Federal Reserve chooses to listen is another matter entirely. Markets are pricing them to hike this year. They should, but whether they will is a totally different matter.

For a history lesson and a detailed analysis of my view on how things might play out in light of a past analogue episode, I suggest everyone read the following piece I posted a few weeks ago. It’s closer now than it was when I wrote it.

A reminder that the technical model site over at pa-globalmacro.com is fully operational and updated daily. Subscribers can choose to receive daily emails highlighting changes to any of the running models. Subscribers to this publication automatically gain access to the technical website, where they can log in with the same email. There are no trials available.

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Behind the paywall, Macro D shares his thoughts on the week just gone by and any meaningful changes he made to his Macro FX portfolio. He is analysing the BoJ, FOMC, RBA and BoE meetings.

Let’s go!

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