QE Restarts

It is QE and might be DE if they buy 2s and 3s, an ease in January is still likely if the data meets our expectations, the tariff shock is complete, thoughts from the road.

In this week’s note we are going to offer some brief thoughts on the FOMC meeting, the incoming data and markets between last week’s 2026 Outlook: Duration Tightening and as of yet untitled annual macro secular thematic investing note we are hoping to release on Wednesday December 17. We were not planning on more than some brief thoughts but unexpectedly had more time on Friday.

• The Fed is restarting QE. They gave themselves the flexibility to purchase maturities out to 3 years. If they buy 2s and 3s they will be restarting DE (duration easing) and the purchases won’t be just technical.

• The decision was a setback in our privatization of the Fed’s balance driven by bank regulatory relief outlook. It was a mistake in our view.

• Forget the dissents and focus on the employment and inflation data.

• This week’s September trade data and tariff revenue through November strengthens our case that the tariff adverse aggregate demand shock has been fully absorbed by consumers and importers, whether import substitution has begun is unclear.

• Falling earnings estimate revisions are the driver of the stall in the AI theme. Counterintuitively the stall, and outperformance of cyclicals is a gift to active equity managers.

• We provide color from clients to our outlook note.