JPMorgan's Priya Misra on Treasury Curve Attractiveness and Economic Outlook

Economic Growth and Tariff Impact

• 🎯 The US economy was in a strong position but is now facing policy shocks, primarily from tariffs.
• 📈 The effective tariff rate, potentially 10% plus higher on China, implies lower growth rather than a recession, with the base case being below potential growth.
• ⚠️ Significant policy uncertainty, not just trade policy but also fiscal policy, is causing companies and consumers to be frozen, hindering investment and large purchases.

Federal Reserve Policy and Inflation

• 📊 The Federal Reserve is in a wait-and-see mode, balancing risks to both sides of its mandate.
• 📉 Tariffs are viewed as a price level shock, and with inflation heading closer to the Fed's target, the Fed is expected to cut rates once inflation is not embedded in expectations and wages.
• ⏳ The Fed might be a bit late to start cutting, but once they see the growth impact, they are expected to cut more than is currently priced in.

Treasury Market Dynamics

• 💡 The front end of the Treasury curve is attractive due to the market's expectation that the Fed is in a wait-and-see approach.
• 📈 The long end of the Treasury curve is trickier and considered a risk asset, with the curve expected to steepen.
• ⚠️ Concerns for the long end include the fiscal implications of new bills on the deficit and whether the rest of the world will continue to buy Treasuries, leading to nervousness about the long end.

Labor Market and Uncertainty

• ⚠️ If policy uncertainty persists, there's a concern that companies may move from