Macro Forecasts

A surprise cut weakens the dollar and adds demand stimulus, modestly reducing the already-low probability of inflation convergence — but the effect is small because dual supply shocks dominate regardless of policy rate

A surprise cut carries an inverted causal effect — signaling underlying economic weakness that widens risk premia rather than easing financial conditions, consistent with the January finding

A rate cut marginally helps mortgage rates through forward curve compression and MBS spread narrowing, but transmission remains structurally impaired by lock-in effects

The rate decision has negligible effect on near-term unemployment — the hiring freeze is driven by tariff and oil uncertainty, not borrowing costs, and rate cuts transmit to labor demand with long and variable lags

A rate cut compresses the Fed-ECB rate differential from 100bp to 75bp and signals employment-first prioritization, both bearish for the dollar and accelerating the existing depreciation trend

Tariff persistence adds 40pp to probability of import prices exceeding 112

Tariff persistence adds 32pp to probability of core goods CPI exceeding 3%

Tariff persistence adds 7pp to probability of dollar declining below 112

Tariff persistence adds minimal 3pp to manufacturing employment probability

Tariff persistence adds 17pp to probability of HY spreads exceeding 350bp

BOJ reaching 1.00%+ worth ~15pp increase in probability of a 10%+ monthly USD/JPY move — aggressive normalization deepens hedging cost trap and risks triggering OTC institutional carry unwind cascade

BOJ reaching 1.00%+ worth ~27pp increase in probability of JGB 10Y exceeding 2.75% — amplified pass-through ratio (1.74x) and fiscal-monetary tension from Takaichi expansion drive yield acceleration

BOJ reaching 1.00%+ worth ~18pp increase in probability of core CPI staying above 2% through June — selection effect implies supportive wage-price data, but conjunction requirement for all 4 readings is strict

BOJ reaching 1.00%+ worth ~6pp increase in probability of UST 10Y exceeding 5% — marginal contribution through deepened hedging cost trap and repatriation pressure, but US-specific factors dominate

BOJ reaching 1.00%+ worth ~30pp increase in probability of Shunto >3.5% — strongest causal effect driven by powerful reverse causality (strong Shunto enables BOJ confidence to hike aggressively)

Fed rate cuts worth ~30pp to EUR/USD reaching 1.25 threshold — the single largest causal effect in the set, driven by rate differential compression and carry trade reversal

Fed rate cuts worth ~7pp to core CPI exceeding 3.0% — modest causal effect driven by dollar-weakening import price pass-through, partially offset by transmission lag timing

Fed rate cuts worth ~29pp to ECB resuming easing — driven by EUR appreciation forcing HICP below target, activating ECB institutional mandate for symmetric inflation targeting

Fed rate cuts worth ~8pp REDUCTION in IG spread widening probability — easing validates front-running and provides credit market backstop, making stress events less likely to breach 120bp

Fed rate cuts worth ~10pp to European equity outperformance — driven by portfolio rotation and carry trade reversal, partially offset by impaired eurozone credit and weak consumption

Demand-side pivot worth ~23pp to CPI exceeding 1.0% threshold. Post-NPC: even with stimulus, only 27% likely due to confirmed 94/6 fiscal ratio and deeper execution barriers than pre-NPC estimated

Demand-side pivot worth ~23pp to retail sales exceeding 8% YoY. Post-NPC: trade-in subsidies cut to RMB 250B, consumer deployment machinery absent

Demand pivot roughly doubles probability of USD/CNY reaching 6.70. Conditional probabilities unchanged; shift is purely from condition probability compression

Demand pivot worth ~15pp to copper averaging above $10,500/ton. Post-NPC: RMB 2T equipment modernization budget-confirmed copper demand; IF FALSE rose +4pp as NPC supply-side is copper-positive

Demand pivot triples probability of import prices exceeding 112. Post-NPC: IF TRUE rose +3pp as post-NPC condition now requires extraordinary policy reversal with stronger PPI response

Demand pivot roughly doubles probability of HY spreads breaching 350bp. Both branches rose: NPC budget-locked deflationary conditions but FOMC-flagged vulnerabilities accumulate

Hormuz reopening worth ~39pp to WTI below $85 probability (46% if reopens vs 7% if closed). The largest direct causal channel — physical supply restoration compresses the $50-58/bbl risk premium. Under continued closure, sub-$85 is near-impossible given INSUFFICIENT offsets and toolkit exhaustion.

Hormuz reopening worth ~28pp to Fed rate cut probability (43% if reopens vs 15% if closed). Reopening removes the primary supply-driven inflation constraint, allowing the FOMC to respond to the LOOSENING labor market and MODERATING wages.

Hormuz reopening reduces recession probability by ~19pp (22% if reopens vs 41% if closed). Recession risk is bounded by financial resilience (NFCI -0.434) even under closure, but prolonged $112+ Brent deepens demand destruction through consumer spending compression.

Hormuz reopening worth ~41pp to gasoline below $3.50 probability (47% if reopens vs 6% if closed). The sharpest causal effect — gasoline at $3.99 is mechanically tied to crude prices. Under continued closure, sub-$3.50 is near-impossible. Even with reopening, rockets-and-feathers lag and summer driving create uncertainty.

Hormuz reopening worth ~20pp to dollar decline probability (38% if reopens vs 18% if closed). The smallest causal effect — dollar dynamics are multi-factorial (safe-haven flows, rate differentials, energy asymmetry). Reopening removes safe-haven and energy supports, but rate differential persistence limits the decline.

Hormuz disruption worth ~59pp to WTI >$85 probability (92% if disrupted vs 33% if not). Delta narrowed slightly from 60pp as the structural floor under IF FALSE rose (depleted SPR, permanent vulnerability premium). Under IF TRUE, the question has shifted from whether prices reach $85 to how far above — the emergency toolkit is exhausted and offsets are formally INSUFFICIENT.

Sustained Hormuz disruption increases the probability of headline CPI exceeding 4.0% by +50pp (82% vs 32%), up from +47pp. The widening reflects ACCELERATING classification and gasoline pass-through making the IF TRUE case nearly mechanical while IF FALSE rose more modestly on non-oil channels.

Sustained Hormuz disruption increases NFCI zero-crossing probability by 53pp (88% vs 35%), unchanged from March 13. Both branches shifted higher by similar amounts (+5pp each). The toolkit exhaustion creates a one-way door under IF TRUE while recession risk from -92K NFP creates independent tightening pressure under IF FALSE.

Sustained Hormuz disruption increases inventory breach probability by 31pp (38% vs 7%), down from 33pp. The reduction reflects the 140M barrel sanctions waiver and demand destruction partially offsetting the INSUFFICIENT supply classification. The causal effect remains significant but is the most moderated of the six pairs.

Sustained Hormuz disruption increases claims breach probability by 37pp (72% vs 35%), up from 32pp. The causal delta widened because -92K NFP makes the hiring freeze → layoff transition more certain under sustained disruption while IF FALSE sees only modest increase from pre-existing weakness.

Sustained Hormuz disruption increases dollar >130 probability by 34pp (42% vs 8%), up from 30pp. The widening reflects the FOMC hawkish posture creating a conditional chain from sustained disruption to potential rate hike while IF FALSE remains at tail risk. The dollar market remains the most ambiguous of the six pairs.

A Fed cut has negligible effect on core PCE convergence — tariff pass-through and shelter dynamics dominate regardless of rate decisions

A Fed cut is worth ~31 percentage points to the probability of dollar falling below 115, accelerating rate differential compression — the strongest causal effect in this analysis

A Fed cut is worth ~28 percentage points to the probability of mortgage rates falling below 5.75%, primarily through rate differential compression and spread dynamics

A Fed cut has negligible effect on HY spread stability — spreads are well below 350bp with strong cushion regardless of the rate decision

A surprise cut slightly reduces confidence in labor stability (-7pp), potentially because the signal effect (Fed sees weakness) outweighs the stimulus effect at short horizons