Inflation divergence between "soft" and "hard" data to resolve in coming weeks/month. Key yield curve not flashing recession.

This week is the start of 4Q22. Since Jackson Hole, both Fed and markets have priced in a significant increase in Fed tightening and these actions have raised concerns about financial accidents and worsened by Russia-Ukraine tensions. The Fed would like to see both labor markets slow (JOLTS, in particular) and meaningful progress on inflation ("hard" data like CPI, PCE, etc). With the Fed determined to fight inflation, investors naturally wonder how equities could even manage to rise in 4Q.

While this certainly seems a steep hurdle, consider the following:

foremost, soft/leading indicators are pointing to a significant slowing in inflationary pressures even as "hard" CPI/PCE have not yet reflected thiswhile Fed and markets are focused on the "hard" data, we believe this divergence will be resolved by CPI showing these improvementsthe Fed is watching labor markets and job openings, in particular, and this should be weakeningbut because so many job openings are "poaching" (per Fed study), job openings could soften while not hurting employment as badlythis latter point is the conclusion of the Fed working paper (see last week) and a support for a soft landingthe yield curves could be stabilizing and in fact the 10Y less 3M is steepening and has not invertedthis is obviously curious an...
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