Excess Returns · Thursday, August 6, 2026
Chan Yang highlights a divergence between the Federal Reserve's policy stance and market expectations regarding a recession versus a soft landing. He likens the dynamic to a dance where the Fed leads, but the market attempts to anticipate its moves, leading to differing pricing of scenarios.
“You mentioned the Fed's stance. And, you know, people have been talking about this recession versus soft landing. I think most people are leaning towards a soft landing now. But, you know, you have this chart here that shows the Fed's policy stance versus the market's expectations. And it's interesting because they're not really aligned. Can you talk about that divergence?”
“Yeah, so, you know, when we think about the Fed's policy stance and market expectations, it's obvious that, you know, the Fed is going to be looking at a lot of different factors when they make their decisions. So, you know, they're going to be looking at inflation, they're going to be looking at growth, they're going to be looking at the labor market.”
“And, you know, obviously, you know, the market is going to be looking at a lot of different factors as well. So, you know, in a way, it's like, you know, the market is trying to anticipate what the Fed is going to do, but also, you know, the Fed is trying to, you know, manage market expectations.”
“So, you know, in a way, it's like, you know, a dance, right? And, you know, obviously, you know, the Fed is going to be the one leading, but, you know, the market is going to be trying to anticipate their moves.”