US Macro2Markets Outlook: This time is different?

No, it’s the tug-of-war between fiscal policy and the Fed’s “long & variable lags”

  • By George Goncalves, Jessica Guo, Jonathan Wong
  • Jan 31, 2024
  • US Rates US Fixed Income US Yields Fed
Download PDF Printable Version


It’s almost an unspoken rule, but uttering the words “this time is different” is usually frowned upon because in the end, it never really is entirely different. Even though economic and market cycles may seem unique in the moment, they all still have one common aspect—at the root they are part of a cycle—and by extension that means there is a beginning and an end. The key is trying to determine where one is in the cycle from a valuations point of view.

It’s a humbling process trying to create macro models and frameworks to try to understand how the moving parts interact. In a similar vein, it’s also hard for complex systems like the economy and markets to be centrally planned. The best one can do is to try to compartmentalize the various forces at play.

We divide them into 4 quadrants: the private sector (consumers/corporates), the banking system, the central bank (i.e. the Fed) and fiscal policy (i.e. the government). We argue 2023 was the soft-landing period, and growth had been boosted by heavy fiscal support and consumer spending. We also believe the rate of change is critical in the short-run, and as such, it’s going to be challenging for the fiscal and consumer side to do an encore in 2024.

This brings us to the Fed and banks. In our view, the Fed’s double-tightening (historically high rates and QT) has not been fully felt yet due to the fiscal policy offset. From this point forward, if the Fed takes too long to normalize monetary policy, short-term rates will become ever increasingly restrictive. Meanwhile, given credit and loss concerns, banks are risk averse and not looking to expand lending at a pace that would support sustainable growth.

Back to the drawing board? We go over a few favorite leading indicators to see if they have failed us and whether the US can decouple from the global backdrop. For now, all we can say it’s too early to say it’s different this time!


Special Topics

  • Exploring Growth Divergences: Can the US Decouple from the RoW?
  • Have Forward Looking Indicators Signals Failed the Forecasting World?
  • Yield Curve History: All roads lead to an eventual steepening of the curve



Until the jobs data falls apart, the market ebbs and flows on narratives. Yet, in our view the broader markets are already priced for a soft-landing outcome and thus priced to perfection. Granted, supply/demand technicals are strong, as seen by the performance of spreads post a massive issuance month. At this stage we refrain from chasing risk assets and continue to be defensive via staying in the front-end, in steepening strategies & MBS basis tighteners.


I understand that any materials on this website have been produced only for persons regarded as professional investors (or equivalent) in their home jurisdiction and in jurisdictions which the MUFG entity producing the material is permitted to do so under applicable laws, rules and regulations.

I also understand that all materials on this website are not investment research or investment advice.