WEBVTT

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As we look towards
2026, our base case is more of the same.

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It's another year of resilient growth near
the long term trend,

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powered by AI capex and consumption
from the wealthy.

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Meanwhile, inflation remains
high and sticky, pressured higher

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by growing passthrough from tariffs
and a structurally smaller labor force.

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In that world, risky asset valuations
continue to grind tighter, while the yield

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curve drips lower, with the Fed gradually
nudging policy rates towards neutral.

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The main question is
how does that base case break?

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The main risk we worry about is not
recession, it's economic overheating.

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Picture a Fed that's far more dovish,
far more politically responsive;

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delivering 2% policy rates to juice growth
ahead of the midterms.

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Add to that loose fiscal policy
that gets looser, elevated tariff rates,

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binding labor force constraints,

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and an ongoing surge from AI capex.

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That's a macro backdrop
that lifts growth to 3%,

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but it also pressures inflation
to or above 4%.

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That dislodges inflation expectations,
it spikes long end yields,

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and it triggers
a correction in risky assets.

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So while the base case is steady as she
goes, our main tail risk is a fine mess.

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Stay tuned.