Assuming no US default — and as discussed in the weekly+, you pretty much have to assume no US default — traders and investors may soon find themselves confronting a macro-policy conjuncture not unlike that which existed prior to March’s banking turmoil.

On the eve of SVB’s collapse, the US data looked almost uniformly strong, prompting markets and Fed officials to ratchet terminal rate expectations higher. Two months and a few bank failures later, and markets are pretty sure the Fed’s done.

Pricing for two (maybe three) rate cuts by year-end reflects, more than anything else, myriad left-tail risks. But what happens if those left-tails disappear, leaving markets to ponder right-tail outcomes instead? In short: What happens if the “no landing” scenario makes a comeback?

I certainly wouldn’t call the incoming data uniformly strong. Indeed, there’s a slowdown afoot across some locales, and it doesn’t help that China’s recovery is apparently no recovery at all. But the US consumer hasn’t rolled over, and if you’re inclined to sigh at the ad nauseam nature of that assessment, I’d tell you that’s precisely the point. Up to and until demand slows appreciably across the world’s largest economy, slowdown narratives will be just that — narratives.

Halfway through Q2, the Atlanta Fed’s GDPNow tracker is sitting at 2.9%. That’s not gonna do it, where “it” means curb inflation expeditiously.

The “inevitable” US recession is starting to feel a lot like the “imminent” corporate profit reckoning — suffice to say “elusive” is the word that comes to mind.

So, what’s going on? Why haven’t 500bps of rate hikes done more damage? Well, one explanation is that economists simply aren’t willing to accept the reality of a new macro regime, and are therefore inclined to believe 5% counts as “sufficiently restrictive” when it fact it’s not restrictive at all, even if it’s high enough to trigger financial distress. That gets at the r-star debate which I revisited Saturday following the relaunch of the New York Fed’s natural rate estimates.

In the absence of land mines or black swans (so, knock on wood), expect to hear more chatter around the idea that once again (i.e., just like January), markets are ahead of themselves in assuming a downturn.

“With each passing week of ‘decelerating but still remarkably resilient’ US data, it is my view that the ‘chalk’ outcome remains one where Fed funds into year-end could still be sticking around here-ish or even plus an additional hike,” Nomura’s Charlie McElligott said, noting that pricing for cuts in H2 is really a “have to” kind of deal given so much in the way of left-tail risk.

“Similar to my January comments on the most mis-priced risk in markets being a false assumption on market sequencing which then assumed ‘pause then cut’ instead of the risk of the Fed needing to actually take terminal projections higher, it feels like the market is starting to get the joke again,” he went on. “There is growing delta for yet another false assumption.”

If you ask BofA’s Michael Hartnett, the “cycle of life” has been disrupted. Typically, that cycle is: “Inflation shocks cause rate shocks, rate shocks cause bear markets, recessions cause Fed rate cuts and Fed rate cuts cause bull markets.”

Not this time, though. Or at least not yet. “[Over] the past six months, fiscal policy and labor markets have prevented the bear market from causing a recession,” Hartnett wrote.

Although this is nails on a chalkboard for whatever’s left of the “transitory” crowd, and also for the “soft landing” crew, inflation isn’t actually getting better on a lot of fronts, and it wouldn’t take much for it to inflect for the worse. The figures above make that clear.

“The inflation shock is ongoing,” Hartnett cautioned. “And now asset prices are reflating again.”

Apropos, McElligott suggested the 2006/2007 playbook might be germane. “The equities market can continue to absolutely party until the end game arrives,” he said. “And it can take much longer than you think despite things breaking along the way, just ripping out hearts in the meantime as we continue to fend off worry after worry, where pervasive skepticism and cynicism keeps sentiment and positioning light, feeding a ‘buyers are higher’ pain trade melt-up within risk assets in the meantime.”