Rates · 1 hr
The Front End Is Doing Something Strange
Front-end pricing has decoupled from the dot plot — the guest explains why that is rational.
Overview
The episode works through why the market is pricing a path that differs materially from the committee’s own projections, and argues this is a reasonable response to asymmetric risk rather than a disagreement about the economy. It covers term premium decomposition, why the market prices cuts it does not expect, and what the options market says about the distribution.
Key takeaways
The market prices a distribution; the dot plot prints a median. The gap is mostly that, not disagreement.
Front-end options show a fat left tail — cuts priced as insurance, not as a base case.
Term premium has rebuilt from a genuinely abnormal starting point; that is normalisation, not stress.
The labour data, not the inflation data, is what would actually move this pricing.
Topics
Publisher’s description
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