Rethinking markets in a macro-driven world

Episode notes

Macro is back. In the latest episode of InvestorExchange, macro strategist Mike Medeiros joins host Chris Perret to discuss inflation, policy uncertainty, and where investors may be mispricing risk across markets.

1:57: Policy rates - too tight or too loose?
3:04: How do we get inflation lower in today's market?
5:11: How resilient is the US economy?
7:05: Will AI deliver a productivity boom?
11:15: How will the mid-term elections affect the economy?
14:12: Collaboration at Wellington

Transcript

Mike Medeiros: And the Fed has been saying all along that rates are modestly restrictive. All right, well, what's the evidence that rates are modestly restrictive? If rates were modestly restrictive, then financial conditions would not be easing. The economy would not be accelerating. The labor market would not be picking up. And most important, inflation wouldn't be above target for going on half a decade now. When I look at that question, there is zero evidence that policy rates are restrictive. And I actually think they're accommodative right now.

Chris Perret: For a while now. Low inflation, stable growth and central bank predictability have enabled beta liquidity and company fundamentals to dominate investor returns. Today, that picture looks very different. Inflation is higher and more volatile. Fiscal policy is more active, geopolitical shocks are more frequent, and central banks are no longer the stable anchors they once were. For investors, that spells opportunity. Put simply, macro investing is back. Macro themes are shaping returns across asset classes, and the challenge is not just getting a single GDP or inflation forecast right. It's understanding the distribution of potential outcomes and where markets may be mispricing the risks.

I’m joined today by the best possible person to talk through all of this. Mike Medeiros, partner and senior macro strategist at Wellington. Mike works closely with portfolio managers across our hedge fund platform, and he is one of Wellington's leading voices on US economic cycles and policy. Mike brings a particular set of skills to this environment. He helps the firm think through policy, the cycle, and the distribution of outcomes. And he is a critical component of Wellington's macro investing edge. There are no shortage of things to discuss, so let's jump right in. Mike I'm thrilled to welcome you to Investor Exchange.

Mike Medeiros: Great to be here. Chris, thanks for having me.

Chris Perret: Let's jump right in with the million-dollar question. Our policy rates too tight or too loose?

Mike Medeiros: I find the fact that this is even a debate at this point kind of hysterical because central bankers and a lot of market participants love to think about this question in academic terms. I'm not saying that's not important. It is. You need to have a theoretical framework for where neutral rates are and why. And a lot of our work suggests neutral rates are higher than previous cycles. But the other thing is as a market participant practitioner, you have to look for evidence. And the Fed has been saying all along that rates are modestly restrictive. All right, well, what's the evidence that rates are modestly restrictive? If rates were modestly restrictive, then financial conditions would not be easing. The economy would not be accelerating. The labor market would not be picking up. And most important, inflation wouldn't be above target for going on half a decade now. When I look at that question, there is zero evidence that policy rates are restrictive. And I actually think they're accommodative right now.

Chris Perret: So where do we go from here? What tools do policymakers and governments have to get inflation, which is the big problem, sustainably lower. And what are the trade offs, both good and bad?

Mike Medeiros: Yeah. So we came into the year and I was fairly constructive on the cycle for four reasons. One is the starting point; your previous question that rates were actually accommodative, not restrictive. The second was fiscal policy is easing right. That's a big difference from last year. The one big beautiful bill is worth about 1% of GDP, half towards households, half towards corporates. Third, again, clear difference from last year: trade policy and overall policy uncertainty is a lot lower. The effective tariff rate has come down due to Trump administration decisions and Supreme Court decisions. And then last is the deregulatory agenda is kicking in. The credit impulse in the US is the highest since ‘22, which is partly due to regulation but partly due to private sector confidence as well.

So I put those pieces together and that to me is consistent with, number one, above-trend growth. Number two, a positive inflection in the labor market with the potential for the unemployment rate to actually turn lower over the next six months, not higher. We can get into that. And it's not a it's not a policy backdrop that's consistent with disinflation.

And so what can policymakers do to get inflation sustainably down to 2%? How about they tighten things? Right, like, we've spent the last nine months with the fed cutting and easing fiscal policy with core inflation at 3%. That's insane. And so I think if they're actually serious about getting inflation down towards 2%. I'm sure we'll get into this… But the Fed needs to move away from an accommodative stance towards a more restrictive stance. And fiscal policy needs to tighten. Now for fiscal policy, there is some tightening baked in for ‘27, but it's extremely modest compared to the easing we've seen. And so I'd put a pretty low probability on that happening, absent a bond-market reaction. And then for the Fed, like, I think there's a growing probability there's about a hike price now by the next over the next nine months or so. I think there's a very reasonable chance that Kevin Warsh’s first move as Fed chair as a hike, not a cut.

Chris Perret: Talk a little bit about the cycle in terms of what you're seeing right now. As you mentioned, there's a plausible case that actually unemployment starts to go lower again. What is causing the US economy to be so resilient in this environment?

Mike Medeiros: On the labor market, I think there was some misconceptions about why the labor market slowed last year there. You know, in the second half of last year when payroll growth slowed, there were a lot of narratives in the market that it was due to AI. And to me, it had nothing to do with AI. If you go back to the first half of ‘25, the economy grew below trend, and that was a function of some pretty big shifts in trade balances ahead of tariffs, number one, number two. Number two, the largest effective tariff increase in 100 years. And number three, lingering uncertainty because we didn't know whether we were going to come in and tariffs were going to be up 50%, down 50%, up ten, down ten, etc. And so that's a horrific backdrop from an uncertainty perspective. The economy slowed below trend and the labor market responded to that with a lag.

Things started to shift I think in the middle of the year, once the one big beautiful bill was passed, once trade policy uncertainty started to come down, then the cycle started to reflect more fundamental forces. And so, from here, the economy, absent the government shutdown in Q4, the economy has been growing above trend now for nine months, and we're starting to see a positive inflection in the labor market. I think all of those four forces I mentioned before are driving things. And so to me, when you have pretty significant labor supply constraints, hiring is picking up and uncertainties going down, that's an environment where the unemployment rate should be falling, not rising. And so I wouldn't be surprised if going into Q3 or coming into September, we're in a scenario where inflation is above 4% in the unemployment rate is at or below 4% as well.

Chris Perret: So I got to jump on the AI question because you brought it up. There's a lot of talk and perhaps hope out there that artificial intelligence or AI is going to deliver a productivity boom that's going to solve all of these supply-side constraint problems. Are you a buyer of this notion that AI is the kind of macro escape valve?

Mike Medeiros: It could. I think it's going to take time though. I find a lot of the discussion around AI fairly binary and singularly focused, where it's like AI is good for productivity, it's bad for productivity. AI is good for jobs, it's bad for jobs. I think you need to put it in the context of the broader supply side. And to me, there's three main pretty important structural and cyclical forces in the supply side of the economy. The first is deglobalization. That essentially means from a growth or inflation perspective, that there are less tradable goods globally, and therefore goods prices become much more sensitive to demand.

And so that's a very big supply shock for the global economy that's ongoing. Number two is in terms of the labor force. We know the demographic trends in the US and in the rest of the developed world are not nearly what they were 10, 20, 30 years ago. Dependency ratios are rising. Working-age population is slowing. And that's been magnified in the US through immigration restrictions and deportations. And so that's a very different shift than previous cycles, where now, the breakeven rate for employment to keep the unemployment rate steady is probably just like 10 or 20,000 jobs close. That's a pretty big shift. Again, another negative supply shock. Third, you have the potential for productivity to lift in a more meaningful way due to AI. The technology is certainly groundbreaking and is accelerating fast, but the initial stages are actually probably a bit more inflationary because of all the upfront capex investment, the energy usage, the commodity usage; you're seeing that come through, like in terms of producer prices, etc. You have to look at AI in the context of what the broader supply side is doing. And for me, I don't see enough evidence yet on the near term horizon over the next six months or so that the productivity we could see is enough to offset the supply damage from those other two forces. I think we could see most of the AI impacts probably coming out of the next recession where companies go through the normal hiring firing process and don't replace those lost workers to the extent they have in previous cycles, but that could be a few years away. And so that's partly why there's a lot of hopes that productivity would lead to disinflation this year, and the exact opposite happening. And it's not just Iran, right. Service inflation is picking up. That has nothing to do with Iran. That reflects domestic underlying capacity conditions in the US. It's heading, I think, towards 4%, core services. And now you have this exogenous shock from oil prices. And so to me that's still a recipe that the structural inflation forces are dominating over cyclical disinflationary forces.

Chris Perret: I gotta touch upon the Iran question. And how does the shock and the potential kind of impact, as you mentioned, through higher energy prices, potentially change the outlook on the US cycle?

Mike Medeiros: I think for now, like if you'd asked me three months ago, I probably would have told you, I think nominal growth's 5 to 6%. Now I'd say it's probably 6 to 7. And so I think it's actually, from a nominal perspective, a boost, not just from an inflation point of view. Inflation is clearly picked up. It's going to pick up more over the next few months. But the US is in a very different place now compared to previous cycles. With respect to energy. The US is a net energy exporter. And so it's a terms-of-trade beneficiary from higher oil prices. Right now there's a lot of stimulus from the one big beautiful bill, which is more than offsetting the hit from higher gasoline prices. But we're past the point of peak fiscal easing. And so we should start to see more of that negative reflex in Q3. At the same time, from a production perspective, higher oil prices boost domestic production of oil. So in aggregate, it's actually net positive for the economy. And so I don't know what level of gasoline or oil prices tip things towards more of a consumer hit rather than a boost to aggregate demand. I don't have the answer to that. I think it's somewhere north of $125 per barrel. I think like the theme for right now is more of a nominal boom, and that's consistent with higher bond yields and okay equity prices too.

Chris Perret: So you stay close to a lot of what's happening down in Washington across the aisle. How are you making sense of this policy agenda under the current administration. And do you see any meaningful risk to the midterms this year?

Mike Medeiros: Yeah, I mean it's not going to help with the for the Republicans in the midterms. I mean, at this point, you know, if gasoline prices stay here, they probably get rinsed.

Chris Perret: In Senate as well?

Mike Medeiros: But yeah, I think the Senate is definitely in play. You know the Senate's in play for North Carolina for Texas, Ohio, Maine. Like the Democrats are very competitive, which is a stark contrast between where we were in November of 2024. If you look at Trump's approvals, about 36%, that's historically low by any metric. He's 40 points underwater on inflation and affordability. He's about 30 to 40 points underwater on the economy, even on immigration, he’s net negative. And if you look at the generic ballot test, which is a good kind of proxy for where things stand nationally, it's about Democrats plus seven and a half to eight. So that to me is consistent with the shift to divided government. Things can change. Obviously we're still a ways away from the midterms, but I think the Democrats are in as good of a position as they could be to capitalize in November.

Now, we do pay attention from a market perspective to the midterms, particularly from a bond market perspective. If you go back to 1994, 2018, and 2022, those are all years that's much higher bond yields throughout the course of the year. All of those cyclical bond bear markets ended right around about a week in the midterm elections. All of those midterms represented shifts from full control of one party to divided government. Bond markets tend to love divided government because it reduces the probability of procyclical fiscal policy. And so I think it's too soon to focus on that from a market perspective now. Clearly, the other forces we talked about, I think will dominate at least over the next few months. But come September, this will be a big area of focus for us and will impact portfolio positioning.

Chris Perret: So Mike, a lot to watch over the coming weeks and months. I've complete confidence in you and the team to stay on top of things and get the repositioning right. So I'm going to switch gears again. You've been at Wellington for a long time now, and you've contributed to the growth and success of both our macro and broader hedge fund business. From your perspective, what makes doing macro Wellington so unique and advantageous?

Mike Medeiros: So the big one is really macro/micro intersection. I have the pleasure of working with a lot of global industry analysts that are looking at individual sectors and individual companies. My framework and philosophy and process from a macro perspective is very top down. And theirs this very bottom up. They're looking at the world from a different place. And when we get that macro micro intersection, the themes tend to be more powerful and it increases the probability we can get trends in markets. We spend a lot of the day to day looking for intersections between what I'm seeing from a macro perspective and what the global industry analysts are seeing, from banks to banking analysts to commodities to consumer analysts, really across the board.

Chris Perret: So it sounds like collaboration is really important here.

Mike Medeiros: Yeah, it's critical. And I think it really shines in Wellington.

Chris Perret: So Mike can you give me an example here of how you've been able to use collaboration in this micro/macro sense.

Mike Medeiros: If we go back to 2023, to begin the year, we had pretty high conviction that rates were too low and the market was underestimating the extent to which central banks would continue to tighten. And so, at the time we were positioned pretty short duration in January and February. We knew there were financial stability risks on the horizon and the yield curve was certainly signaling that at the time. But with any financial stability, it's always very hard to time when it's going to hit in the potential impact. And so I was actually at Reagan Airport in DC, and Alan GU, a global industry analyst for financials in the US, actually called me. And this was on a Wednesday night and started to explain what was happening with Silicon Valley banks. It was new and it was fresh, and we had a meeting the next morning. We talked about the implications. Because of the importance we put on a distribution of outcomes. This was a scenario that even though we weren't positioned for, we were aware of and thinking about, and we were able to completely shift positions over the course of a few days to be long duration, to capture the downside-growth risk that hit after a number of banking failures over that weekend. And so he was instrumental in helping us get from A to B so quickly. And I don't think we would have been able to do that without him.

Another example is in 2025, post Liberation Day. We were we were debating the magnitude of a walk back from President Trump, particularly as it related to the tariffs on China, because at the time, tariffs on China were about 150%. That's not a restrictive trade policy. That's an embargo. And so I wouldn't say it was clear, but it suggested there was a rising probability that something would need to shift ahead of like back-to-school shopping and Christmas shopping, etc. Because a lot of that inventory comes in well before. And so Tina Sun, who's a consumer analyst, was instrumental in elevating how things just simply were not going to work unless there was a significant walk back of tariffs. We were in close touch every day and we were able to capture both the large increase in tariffs and the walk back. Those are two big examples, but a lot of this happens on a daily basis. And we're all after the truth. We're all trying to come at it from our own different perspectives. And it's definitely something that makes Wellington unique, is the ability to have that ongoing communication and collaboration.

Chris Perret: Mike, before we wrap up, let's do a quick lightning round of questions. Biggest risk to the bond market sticky inflation or fiscal deficits?

Mike Medeirors: Can I say both? I think stickier inflation in the near term. But over the medium term you know, my concerns around fiscal policy remain pretty acute.

Chris Perret: So, Mike, I know we already covered this to some degree, but assuming Kevin Warsh is confirmed is you're really going to hike rates out of the gate.

Mike Medeiros: So first meeting I think he'll hold. That's not a unique view that's completely priced in. First move in rates and then will be higher not lower.

Chris Perret: Even with the administration and their wishes?

Mike Medeiros: Even with that. I think Kevin Warsh takes the independence of the Fed seriously. And the last thing you would want to do with inflation potentially double the target and full employment, is to cut rates. And so if you're trying to protect the long bond, cutting rates into nominal growth of 6%, I couldn't think of a worse scenario for a long end yields. And so actually tighter policy initially could actually be better for term structure of yields.

Chris Perret: Last one. Complete the sentence macro really matters today because...

Mike Medeiros: I like my job and I want to keep it.

Chris Perret: Mike this has been a fascinating conversation. Thanks for joining us today.

Mike Medeiros: Thanks so much for having me. Hope to do it again soon.

Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk. Podcast produced June 2026.

Wellington Management Company LLP (WMC) is an independently owned investment adviser registered with the US Securities and Exchange Commission (SEC). WMC is also registered with the US Commodity Futures Trading Commission (CFTC) as a commodity trading advisor (CTA) and serves as a CTA to certain clients including commodity pools operated by registered commodity pool operators. WMC provides commodity trading advice to all other clients in reliance on exemptions from CTA registration. WMC, along with its affiliates (collectively, Wellington Management), provides investment management and investment advisory services to institutions around the world. Located in Boston, Massachusetts, Wellington Management also has offices in Chicago, Illinois; Radnor, Pennsylvania; San Francisco, California; Frankfurt; Hong Kong; London; Luxembourg; Milan; Shanghai; Singapore; Sydney; Tokyo; Toronto; and Zurich. This material is prepared for, and authorized for internal use by, designated institutional and professional investors and their consultants or for such other use as may be authorized by Wellington Management. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. In Canada, this material is provided by Wellington Management Canada ULC, a British Columbia unlimited liability company registered in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan in the categories of Portfolio Manager and Exempt Market Dealer.

In Europe (excluding the United Kingdom and Switzerland), this material is provided by Wellington Management Europe GmbH (WME) which is authorized and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). This material may only be used in countries where WME is duly authorized to operate and is only directed at eligible counterparties or professional clients as defined under the German Securities Trading Act. This material does not constitute investment advice, a solicitation to invest in financial instruments or information recommending or suggesting an investment strategy within the meaning of Section 85 of the German Securities Trading Act (Wertpapierhandelsgesetz). In the United Kingdom, this material is provided by Wellington Management International Limited (WMIL), a firm authorized and regulated by the Financial Conduct Authority (FCA) in the UK (Reference number: 208573). This material is directed only at eligible counterparties or professional clients as defined under the rules of the FCA. In Switzerland, this material is provided by Wellington Management Switzerland GmbH, a firm registered at the commercial register of the canton of Zurich with number CH-020.4.050.857-7. This material is directed only at Qualified Investors as defined in the Swiss Collective Investment Schemes Act and its implementing ordinance. In Hong Kong, this material is provided to you by Wellington Management Hong Kong Limited (WM Hong Kong), a corporation licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), and Type 9 (asset management) regulated activities, on the basis that you are a Professional Investor as defined in the Securities and Futures Ordinance. By accepting this material you acknowledge and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available to any person. Wellington Investment Management (Shanghai) Limited is a wholly-owned entity and subsidiary of WM Hong Kong.

In Singapore, this material is provided for your use only by Wellington Management Singapore Pte Ltd (WM Singapore) (Registration Number 201415544E). WM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets Services Licence to conduct fund management activities and is an exempt financial adviser. By accepting this material you represent that you are a non-retail investor and that you will not copy, distribute or otherwise make this material available to any person. In Australia, Wellington Management Australia Pty Ltd (WM Australia) (ABN 19 167 091 090) has authorized the issue of this material for use solely by wholesale clients (as defined in the Corporations Act 2001). By accepting this material, you acknowledge and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available to any person. Wellington Management Company LLP is exempt from the requirement to hold an Australian financial services licence (AFSL) under the Corporations Act 2001 in respect of financial services provided to wholesale clients in Australia, subject to certain conditions. Financial services provided by Wellington Management Company LLP are regulated by the SEC under the laws and regulatory requirements of the United States, which are different from the laws applying in Australia. In Japan, Wellington Management Japan Pte Ltd (WM Japan) (Registration Number 199504987R) has been registered as a Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. WM Japan is a member of the Japan Investment Advisers Association (JIAA), the Investment Trusts Association, Japan (ITA) and the Type II Financial Instruments Firms Association (T2FIFA). WMIL, WM Hong Kong, WM Japan, and WM Singapore are also registered as investment advisers with the SEC; however, they will comply with the substantive provisions of the US Investment Advisers Act only with respect to their US clients.

©2026 Wellington Management Company LLP. All rights reserved.