A MEMO TO THE NEW CHAIRMAN, FROM AN OLD ACQUAINTANCE

A MEMO TO THE NEW CHAIRMAN, FROM AN OLD ACQUAINTANCE

Sent without letterhead, because some relationships don't need one

You don't know us personally, Chairman, but we've been doing business with your predecessors since Paul Volcker was breaking inflation's spine with 20% fed funds. We are the bond market, and we wanted to welcome you to the chair with a few numbers, since you've made it clear you're skeptical of dot plots and economic forecasts in general. Numbers, at least, don't have an agenda. Well — they have one agenda. Ours.

May CPI landed at 4.2%, the third straight month of acceleration and the hottest print since April 2023. Energy is doing the heavy lifting, up 23.5% year-over-year as the Iran conflict and the Strait of Hormuz mess keep barrels expensive, a jump from 17.9% just a month prior. You've called inflation a choice. You've called AI structurally disinflationary. We'd like to know which choice produced this particular acceleration, and whether Nvidia's GPU shipments are supposed to be bringing down the price of jet fuel, because so far the correlation isn't showing up in our screens.

Here's the inheritance nobody mentioned during your confirmation hearings. The committee you're walking into voted 8-4 in April, and the dissents pulled in opposite directions like a tug-of-war with no rope. Stephen Miran wanted a cut. Beth Hammack, Neel Kashkari, and Lorie Logan backed the hold but wanted the easing bias stripped from the statement entirely. One dove. Three hawks. Eight people in the middle who haven't decided what they are yet. You spent 2008 inside the Board warning that inflation was the more dangerous fire to put out. Now the market is wondering whether the man who once worried about runaway prices is going to be talked into tolerating them because the political wind blew you into the job. We've seen this movie before. It rarely ends with a Volcker-style sequel.

You've said you want to run things more like Greenspan did — fewer pressers, more mystique, the Fed as oracle rather than open book. We remember Greenspan. We remember 1994 too, when this market sold off so violently in response to a tightening cycle that the press coined the term "bond vigilantes" to describe us. We've kept the badge. The 30-year is sitting just under 5% right now. The 5-year has climbed roughly 30 basis points since March. The 10s/2s spread has compressed from 0.74% in February to about 0.4% today — not inverted, but tightening in exactly the direction late-cycle textbooks describe. We are not threatening you. We are informing you. Politely. The way you inform a new tenant that the radiator clanks.

Meanwhile your equity cousins are having an entirely different conversation. The S&P and the Dow keep printing records, the Dow and TSX both hit fresh highs even as the Nasdaq wobbled, and last week alone the Dow added 0.66%, the S&P 0.65%, the Nasdaq 0.70% — gains that arrived despite a wholesale inflation surge nobody wanted to look at too closely. Bank of America's pre-market-peak checklist just hit 70%, which happens to match the historical average reading at the last seven major market tops over 35 years. That is not a prophecy. It is a pattern, and patterns are the only thing this letter actually respects.

We'd be remiss not to mention the personal angle, Chairman, because it's a good story even by Washington standards. Your financial disclosures showed more than twenty crypto-linked positions — Solana, Compound, dYdX, a stake in a Bitcoin payments startup. Federal ethics rules made you sell every token before you took the oath, which means the man overseeing the most consequential monetary tightening conversation in years has zero personal exposure to the asset class that monetary tightening hits hardest. There's something almost too neat about that. The crypto-curious chairman, scrubbed clean of crypto, presiding over the rate decision that crypto traders are bracing for like a tornado siren.

Today the rate itself isn't news. CME FedWatch and Polymarket alike have it pinned near 98% odds of a hold at 3.50%–3.75%, and Kalshi agrees within a rounding error. Nobody serious thinks you're moving the number. What you're actually deciding, in front of cameras for the first time, is whether the dot plot still shows a 2026 cut on the table or whether that gets quietly retired in favor of a flat line, or — and this is the version that would actually rattle us — a dot that creeps upward. JPMorgan's Feroli wants the easing-bias language gone from the statement outright. Goldman has already pushed its own cut call out to 2027. The market has spent the better part of a year deciding that your committee's old forecasts were wrong, and today is the day your committee gets to admit it in writing or insist, against the weight of its own data, that it was right all along.

We'll be watching the screen at 2:00 p.m. and the cameras at 2:30. We always are. Welcome to the chair. Try not to need our patience too often — we've historically run out of it the same week someone insists we're being unreasonable.

— The Bond Market