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Welcome to Thoughts in the Market. I'm Michael Zezas, global head of fixed income research and public policy strategy. Today, what a subtle shift in the Fed's reaction function could mean for markets into year end. It's Wednesday, September 3rd at 11am in New York. Last week our US economics team flagged a subtle but important shift in US monetary policy. Chair Jay Powell's speech at Jackson Hole underscored that the Fed looks more focused on managing downside growth risks and consequently a bit more tolerant of inflation. As you heard Michael Gabin and Matthew Hornbach discuss last week, our colleagues expect this brings forward another Fed cut into September, kicking off a quarterly pace of 25 basis point moves. But while this is a meaningful change in the timing of Fed rate cuts, this path would only result in slightly lower policy rates than those implied by the futures market, a proxy for the consensus of investors. So what does it mean for our views across asset classes? In short, our central case is for mostly positive returns across fixed income and equities into year end. But the Fed's increased tolerance for inflation is a new wrinkle. That means investors are likely to experience more volatility along the way. Consider U.S. government bonds. A slower economy and falling policy rates argue for lower treasury yields. But if investors grow more convinced that the Fed will tolerate firmer inflation, the curve could steepen further with the risk of longer maturity yields falling less or potentially even rising. Or consider corporate bonds. Our economic growth view is slower but still expanding, which generally bodes well for corporate balance sheets and thus the pricing of credit risk. That, combined with lower front end rates, suggest a solid total return outlook for corporate credit, keeping us constructive on the asset class. But of course, if long end yields are moving higher, it would certainly cut against overall returns potential. Finally, consider the stock market. The base case is still constructive into year end, as US Earnings hold firm and recent tax cuts should further help corporate cash flows. However, if long bonds sell off, this could put the rally at risk, at least temporarily, as my colleague Mike Wilson has highlighted, given that higher long end yields are a challenge to the valuation of growth stocks. The risk A repeat of the early April dynamic where a long end sell off pressures valuations. Could we count on a shift in monetary policy to curb these risks, or another public policy shift, such as easing tariffs or treasury adjusting its bond issuance plans? Possibly, but investors should understand this would be a reaction to market conditions, not a proactive or preventative shift. So, bottom line, we still see many core markets set up to perform well, but the sailing should be less smooth than it has been in recent months. Thanks for listening. If you enjoy thoughts on the market, please leave us a review and tell your friends about the podcast. We want everyone to listen.