UBS On-Air: Market Moves UBS On-Air: Paul Donovan Daily Audio 'As you were'
Jun 24, 2025
The podcast dives into the precarious ceasefire between Iran and Israel, analyzing its surprising impact on oil prices. Geopolitical tensions are overshadowed by investor confidence despite rising inflation and expected shifts in U.S. monetary policy. Additionally, it critiques the recent Congressional hearing featuring Fed Chair Powell, pointing out the lack of probing questions and the central bank's relevance in current market discussions. The interplay of global events and monetary strategies offers a fascinating landscape for investors.
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Markets Ignore Tail Risk Tensions
- Israel and Iran have an implicit "if you stop, I stop" agreement despite ongoing missiles.
- Markets treat nuclear threats as extreme tail risks not to weigh heavily in asset pricing.
Fed's Forward-Looking Rate Cuts
- The Fed may cut rates even as inflation rises, signaling a shift to forward-looking policy.
- Anticipating economic slowdown allows rate cuts without immediate inflation control, assuming future inflation moderation.
US Growth and Inflation Cycle
- Rising inflation leads to falling incomes, slowing consumption, hiring, then growth sequentially.
- The Fed anticipates this pattern, allowing rate cuts mid-inflation expecting slowing growth to ease inflation.