The plane metaphors are as tired as they are ubiquitous.

When it comes to analogies, ubiquity is conducive to clichés, and that’s where we are with aeronautics, policy and macro.

“I believe that monetary policy should continue to tighten, but… the view from the cockpit is very different at 30,000 feet than it is close to the ground,” Christopher Waller said Friday, in remarks prepared for an event in New York. “To return to the airplane image, after climbing steeply and using monetary policy to significantly raise interest rates throughout the economy, it was apparent to me that it was time to slow, but not halt, the rate of ascent,” he continued, referencing December’s 50bps hike.

Waller’s speech was a meandering affair, but the gist of it was that although additional tightening is warranted to corral inflation that’s still too high, the Fed has made progress and as such, he supports another downshift in the pace of rate hikes at the Fed’s next meeting. “Six months ago, when inflation was escalating and economic output had flattened, I argued that a soft landing was still possible — that it was quite plausible to make progress on inflation without seriously damaging the labor market,” he said. “So far, we have managed to do so, and I remain optimistic that this progress can continue.”

Again, the plane metaphors are nails on a chalkboard by now, but the Fed hasn’t tired of them just yet. Waller’s remarks were notable. He’s been a hawk, and although he went out of his way Friday to emphasize that the job isn’t done, it’s now obvious that the days of outsized hikes are behind us.

Stocks were pleased. This week found equities frowning at evidence that the US economy might be closer to recession than most were inclined to believe based solely on the labor market. It was a rare bout of “bad news is bad news” behavior from risk assets. On Friday, Waller’s “plane English” (that’s a Jerome Powell joke) helped restore the good vibes that bolstered stocks during the first two weeks of the new year.

Where things go next is anyone’s guess, if we’re all honest. Earnings season in the US is a bit of a mixed bag so far, much like the economy itself. As the curtain closes on another week of ambiguity, I wanted to highlight a few excerpts from recent analyst notes (and from one economist’s newsletter) in “roundtable” fashion. Readers tend to appreciate these quote compendiums, and they make for good Friday evening reads. As usual, topics vary, and that’s on purpose.

If [an] equity selloff and bond rally were to happen, another question is what should be the timing of it. Most economists expect a recession late this year or in 2024, and large crises tend to play out over a 2-3 year time horizon. The current crisis (rates, inflation, slowdown) is already lasting for over a year and markets tend to anticipate and accelerate economic developments. We do want to note that market crises tend to evolve in a non-linear fashion and eventually result in central banks reversing policies (when markets can start recovering from sufficiently low valuations). Non-linear trajectory, informally known as ‘gradually then suddenly,’ happens because of contagion between various parts of the market. Currently, there are a number of potential segments that are at risk due to a combination of secular trends, the unprecedented rise in interest rates and economic slowdown. These include commercial real estate, venture capital, private equity, crypto markets, and stock holdings popular with retail. Additionally, there are risks of a re-emergence of the energy crisis, earnings recession and geopolitical escalations. A further issue is the very low liquidity in both equities and bonds. After an initial improvement in 2021 (likely related to rates and QE), liquidity fell last year and remains at historically low levels, and recently did not materially improve with declining market volatility. — Marko Kolanovic, JPMorgan

A dichotomy is occurring with the US consumer appearing to feel much better about the environment with surveys bouncing from their near record lows just as the real economy seems to be moving into recession. Intuitively, it would appear that these two observations couldn’t co-exist but households and corporates are responding to different lags to inflation and rates, respectively. The household is benefiting from the immediate drop in the costs of living while corporates are absorbing the lag effects of higher interest rates altering CEO behavior towards investment and capex many months ago. — Sean Darby, Jefferies

Our take is it’s unlikely that anything will emerge in the week ahead that will bring into question the quarter-point hike forecast. As a result, the Timiraos-Effect will be limited and any confirmation from the financial media that 25bps is the FOMC’s base case will lack its market-moving potential. Suffice it to say this won’t prevent pundits from punditting; even if we’ll be skeptical of any insight on offer aside from what Fedspeak has already communicated during the week just passed. Brainard’s decision not to push back against the undue easing of financial conditions linked to the rebound of US equites was a tacit endorsement of the rally in Treasurys and one of the reasons our conviction is high that the 10-year sector won’t revisit the >4% zone for any meaningful period of time, if at all, during 2023. — Ian Lyngen and Ben Jeffery, BMO

The path back to low inflation continues to be a messy one. It’s not one the Fed controls. It’s about everyday decisions by consumers and businesses. We are seeing some of the imbalances in supply and demand of the past two years that led to high inflation start to unwind. Businesses will keep raising prices as long as consumers are willing to pay them. A big drop in retail sales suggests consumers may be reaching a limit. A more price-sensitive consumer is good news for inflation. Declines in retail sales, after years of outsized gains in both prices and goods, are a good sign for getting back to normal. And it’s a sign of how we are walking a tightrope of lower inflation, keeping jobs and avoiding a recession. — Claudia Sahm

Data-wise, markets were irritated [this week] by US initial claims falling even further, underlining the labor market is not weakening yet. That implies the risk of wage inflation, and so of the higher rates course, and so lower returns for the asset-rich. How irritating that the economy is ostensibly performing well for ordinary working people, not assets! While there may still be global wage differentials for virtue-preaching, profit-maximizing Western corporations to exploit — as they seek to end-run striking workers in the UK and France, for example — wherever they shift their workforce to, they are still going to find the same kind of low-end wage pressures ready to explode. Looking around the world, it seems corporations would need to find a new, inhabited planet to avoid wage inflation issues. (That or a deep recession that would also not be good for equities.) — Michael Every, Rabobank

Interestingly, despite a steadily improving inflation trend and a benign rates environment — stocks traded lower on the week. Index players remain concerned that valuation may place a ceiling on index performance in the year ahead, even as fundamental catalysts emerge. The S&P 500 is trading up near an 18X forward P/E multiple — a valuation level not typically seen outside of the Tech bubble (either the one in 2000 or the latest one in 2021). A range-bound index, however, can still be fertile ground for alpha; but it’s one where traders make money and investors get bored. — Stephen Innes, SPI Asset Management

The three global ‘left tails’ from 2022 and primary drivers of last year’s ‘US dollar wrecking ball’ trade — 1) Fed ‘impulse tightening’ due to hot inflation overshoot; 2) European ‘hard recession’ due to the continental energy crisis; and 3) China’s ZCS strategy — have instead seen counter-consensus relief from prior worst-case scenarios, in turn repricing the ‘right tail’ global growth outcomes higher in recent weeks / months. That’s why it seems the entire trading world is grabbing into these obvious ‘anti-US dollar’ trades as the ‘cleanest’ plays around for the start of 2023, even just on a simple repositioning, as legacy ‘shorts’ in rest-of-world versus US are unwound / covered, let alone the longer-term reallocation / re-weighting trade for allocators who’ve been underweight Europe, Japan, China / EM versus US for over a decade. — Charlie McElligott, Nomura

Recession coming and likely a biggie… higher US unemployment coinciding with 2% personal savings rate, 15% growth in credit card debt, 19% record APR credit card rates, consumer finance companies increasing provisions… no bueno. — Michael Hartnett, BofA