US Stagflation Dashboard for Week of 8 Sep 25

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 Scenario Probabilities


Executive Summary

There is now a higher risk of a Recession-first Stagflation. The labor-market data from BLS was the dominant reason the model tilted more toward Recession-first this week, with weak hiring and a higher unemployment rate outweighing the mitigating effect of moderating wage growth. 

Uncertainty continues to fuel the rise in the 30-year bond yield.  2-year yields fall faster than 10 yr yields on increased Fed-cut expectations amid growth weakness thus maintaining the momentum in the rise of 2y-10 yield spread.

Falling TIPS 5y and 10y real yields typically reflect softer growth and/or easier policy expectations.

General consensus in the markets lean towards a 25 bps rate cut by the Fed at its Sep 16-17 meeting, with some analysts even expecting a 50 bps cut. However, inflation risks persist due to a weak USD and exacerbated by wide ranging tariffs on imports the prices of which are ultimately borne by US consumers.

What changed since last week

  • Inflation anchor (5y5y): 0.0 bps to 2.32%.

• Real rates (10Y TIPS): -3.0 bps to 1.79%.

• Curve (2s10s): -3.0 bps to 0.58 (% points).

• Credit (HY OAS): -4.0 bps to 2.84 (%).

• Payrolls (BLS): NFP 22K, unemployment 4.3%, wages YoY 3.7%. 2021+ view removes 2020 anomaly in charts.

5y5y Inflation Expectations
5y5y inflation expectations: key inflation anchor for scenario modeling.

2s-10s Treasury Yield Spread

2s-10s: yield curve shape signals growth vs inflation dynamics.

CPI YoY
CPI YoY: monthly inflation trend.

High-Yield OAS
HY OAS: credit risk pricing and financial conditions.
TIPS Real Yields


TIPS real yields: real rate backdrop.

Wage Pulse (AHE YoY)
Wage Pulse uses data from 2021 onward to avoid 2020 distortion; thresholds at 3.5% and 4.5%.

Hiring Pulse (NFP MoM)
Hiring Pulse uses data from 2021 onward; thresholds at 100K and 200K to gauge momentum.





 









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