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1. Goldilocks We see a gradual economic slowdown, but resilience remains evident and the market stays in the soft-landing camp. The implied terminal fed funds rate holds above 3%. Inflation rises, but the base case is that it rolls over and heads lower into 2026. Meanwhile, the economy gets juiced up ahead of the US mid-term elections (Nov 2026).
👉 This is the “Goldilocks” outcome for risk: confidence in the Fed holds, the “Fed Put” remains alive, equities and crypto trade higher, and volatility stays low.
2. Trump Proved Right, Powell Behind the Curve In this scenario, Trump’s critique proves accurate. Powell is behind the curve. The Fed chases the unfolding economic weakness, cutting rates towards neutral, but the economy fails to respond. The terminal fed funds rate prices under 2.8%. Reserve balances at the Fed also fall as the Treasury General Account (TGA) is rebuilt, reducing system liquidity.
👉 Outcomes: equities and the USD fall (notably vs JPY, EUR, CHF), while gold trades higher.
3. Powell’s Policy Mistake Powell gets the pivot timing wrong. Growth and labor markets hold up reasonably well, perhaps with some downside risk to unemployment. The Fed cuts rates in September and signals a base case of heading to neutral. But tariffs prove more inflationary than expected – more prolonged, more impactful. Inflation expectations rise, and term premium climbs toward 1%.
👉 The market goes full tilt into curve steepeners, with 10- and 30-year Treasuries breaking to new cycle highs – just as the Treasury Department ramps up net cash borrowing requirements. History shows that, generally, things reconcile in a positive fashion. It pays to be optimistic, but also open-minded and ready to react dynamically when the facts demand it. Scenario 3 would take time to play out (as they all will), given how data-dependent it is.
For me, US real (inflation-adjusted) Treasury yields will be the key. If long-end yields rise but real rates fall (because inflation expectations rise even faster than nominal Treasuries), then gold would likely trade to new highs – and we’d be talking about $3,500+.
Where do you stand?
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