RE: The New Regime, The Old Playbook, and Why the Bond Market Thinks You're Bluffing
Congratulations on the transition.
The nomination paperwork cleared the Senate Banking Committee pipeline on February 24th. The yield curve — that ancient, patient, unimpressed creature — responded immediately by doing what yield curves do when they sense a new hand at the wheel that might be more theatrical than technical: it steepened. Bear steepening, specifically. The long end selling off faster than the short end, which is the bond market's polite way of saying we'll believe it when we see it.
Powell's term ends May 15th. Seventy-two days, give or take. Enough time for one more FOMC meeting on March 17-18 — Powell presiding, lame-duck energy in full effect — and then a handover into the most structurally complicated monetary moment since Paul Volcker decided in 1979 that he'd had enough of watching inflation eat the country alive and raised rates until the screaming stopped.
Let's talk about what's actually being inherited here.
The headline number people keep misreading is core PPI. January: +0.8% month-over-month. The consensus was 0.3%. That's not a miss — that's a different reality. Annualize that and you're not in the Fed's 2% neighborhood; you're not even in the same zip code. Core PPI at +3.6% year-over-year. PCE crawling toward 3%. The labor market adding 130,000 jobs in January with unemployment at 4.3% — better than expected, which would normally be good news, except that the Challenger, Gray & Christmas data showed January layoffs at their highest since 2009. The averages look stable. The distribution underneath them does not.
This is the economy being handed over on May 15th. Not the one the sell-side built their twelve-percent-annual-return forecasts around. That economy lives in a Motley Fool article published three days ago and assumes AI capex keeps compounding, tax cuts clear the Senate without revisions, and the Fed cuts rates into the back half of the year. Each of those three assumptions is now fighting for its life simultaneously.
The AI capex story: OpenAI just closed a $110 billion round — Amazon in, the valuation now sitting at $730 billion pre-money against a $500 billion mark from October. Four months. Forty-six percent richer on paper, zero percent more profitable in reality. The round didn't spark a rally. It sparked a debate. UBS put out a note saying private-credit default rates could reach 15% if AI disruption runs "aggressive." BlackRock and Goldman both flagged that the Warsh era represents a clear departure from the era when the Fed was, let's say, thoughtful about how quickly it let air out of asset prices. The IGV is down 23% year-to-date. Nvidia beat earnings and fell 5%. The market is doing the thing where it stops rewarding growth and starts punishing valuations. This is not a rotation. This is a reckoning, conducted politely, in slow motion.
Here's the part where history becomes useful rather than decorative.
The 1951 Treasury-Fed Accord — the last time the relationship between the central bank and the executive branch was formally renegotiated — came after years of the Fed being subordinate to Treasury's desire to keep borrowing costs artificially low to finance post-war debt. The Accord ended the peg, restored independence, and laid the groundwork for modern monetary policy. The person coming into the Fed chair role in May has explicitly invoked that Accord as a template. He wants a new one. The question — the only question that matters — is which direction it points.
Because here's the thing about Accords: they establish the terms of a relationship. And right now, the administration wants rates lower, the data says hold, and oil futures just jumped 2.78% in a single session because missiles landed in Iran on Saturday night and nobody knows what the Strait of Hormuz looks like in three weeks. Gold is up. Silver is up. The commodity complex is repricing geopolitical risk in real time. Every dollar that crude climbs past $72 is another reason the Fed cannot cut. Every percent core PCE holds above 2.8% is another meeting where the statement reads "data dependent" and the press conference answers three variations of the same question about timing.
Into all of this walks a new chair on May 15th, confirmed or not, with a doctrine of "Sound Money" and a balance sheet still sitting at something north of $7 trillion, and a president publicly on record saying rates should come down one to two full percentage points.
The bond market is not convinced this ends cleanly. The bear steepening says so. The 10-year holding above 4.6% says so. The complete absence of rate-cut pricing in the first half of 2026 says so.
Meanwhile, the equity market spent the last week of February trying to figure out what to do with itself.
Netflix climbed 10% after declining to chase Warner Bros. Discovery in a bidding war — the market rewarding discipline in M&A for possibly the first time since discipline became unfashionable. Paramount soared 18%. Warner dipped 2%. A streaming consolidation story playing out in real time, the kind of thing that would have been the week's biggest narrative in a normal week. This was not a normal week. It got buried under PPI prints and private credit contagion and geopolitics.
The private credit story deserves a longer piece. The collapse of UK mortgage lender Market Financial Solutions dragged Barclays down 4%, Jefferies almost 8%, Wells Fargo 5%, and Apollo 7%. These aren't peripheral players. Barclays is a systemically important institution. Apollo's Atlas SP Partners is one of the largest structured credit shops in private markets. What showed up was not a single rogue lender — it was a reminder that the $3 trillion private credit ecosystem is marked to model, not to market, and that models assume funding conditions that are now actively deteriorating. UBS's 15% default rate scenario is not a tail risk. It's a scenario with inputs that are currently being satisfied.
The S&P 500 Equal Weight hit a new all-time closing high Thursday. Let that coexist with the Nasdaq's worst February since last March. This isn't contradiction — it's rotation with a sharp edge. The 493 stocks that aren't Nvidia and Microsoft are doing fine. The seven that held up the entire market's multiple for two years are being repriced. When the weight leaves the top, the structure below looks different.
The memo ends here, because memos end before the uncomfortable conclusion.
But off the record, the bond market has a view on all of this. It's expressed not in language but in the shape of the curve. And the shape says: we've seen ambitious new regimes at the Fed before. We've watched them walk in with doctrine and walk out with pragmatism. We've watched inflation force the hand of people who said it wouldn't. We've watched geopolitical shocks rewrite the macro calendar. We've watched the gap between the president's stated preference on rates and the data's implied necessity produce exactly the kind of tension that ends careers and breaks credibility and occasionally triggers the kind of forced reversal that leaves lasting damage to institutional authority.
The 10-year will tell you when it believes. It hasn't yet.
Check back in June, after the first FOMC meeting under new leadership, after the payrolls number this Friday, after whatever Iran decides to do with the Strait, after the ISM Manufacturing PMI lands tomorrow morning and reminds everyone that the real economy is also a variable.
The market opens in eighteen hours.
