‘The Macro Says Cuts Not Hikes’

Key Takeaways

• Consumer sentiment hits 50‑year low, limiting price pass‑through
• Energy cost surge pushes Trump’s inflation approval below 33%
• Market prices only 5 bps of Fed cuts, signaling dovish shift
• Hartnett forecasts CPI, EPS peaks Q2, yields staying under 4%
• Dollar weakness may rise as foreign investors seek lower‑yield assets

Pulse Analysis

The latest "Flow Show" from BofA’s Michael Hartnett paints a stark picture of American consumer confidence, now at its lowest level in half a century. Rising energy prices have amplified household budget strain, while a Reuters/Ipsos poll shows President Trump’s approval on inflation slipping beneath 33%. This sentiment backdrop reduces firms’ ability to pass higher input costs onto customers, pressuring profit margins and setting the stage for a broader economic slowdown.

Hartnett’s analysis suggests that the Federal Reserve’s policy curve is mis‑priced on the market’s side. While traders were briefly entertaining a better‑than‑even chance of a rate hike at year‑end, current short‑term interest‑rate futures reflect merely five basis points of easing. He anticipates that both CPI and earnings‑per‑share expectations will peak in the second quarter, with two‑year Treasury yields staying below the 4% threshold. Such a dovish shift could lower borrowing costs, support equity valuations, and temper the recent sell‑off in growth stocks.

A weaker dollar is another likely byproduct of a dovish Fed stance. Hartnett flags geopolitical risks—such as NATO tensions and OPEC’s petrodollar recycling—that could spark a “buyers’ strike” on U.S. assets. With foreign investors already holding roughly $35 trillion across U.S. equities, Treasuries, and corporate bonds, a softer greenback may become a strategic tool for policymakers to attract capital without inflating bond yields. This dynamic could reverberate through import‑export balances, corporate earnings forecasts, and the broader narrative of U.S. monetary policy in 2026.