Scarlet Fu

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Please welcome back Kathy Jones, Chief Fixed Income Strategist for the Schwab Center for Financial Research.

Kathy, let me start with you.

I want to pick up on that chart that Mike just showed us, that idea that traders have not only priced out rate cuts for the rest of this year, but they have priced in a rate hike or the odds of a rate hike this year as well.

Is this dramatic repricing appropriate or is it overdone?

End of the third week, I believe.

George, what do you think?

So one of the consensus trades before the war began was the steepening yield curve.

And this week, we've seen the 2s, 10s spread narrow sharply to around 42 basis points.

You would think that the inflationary impact of rising oil would lead to curve steepening.

What does this rapid flattening, Kathy, tell us about what the market sees as the key risks facing the Fed?

George, as we wait for the end game, what do you want to hold?

Where do you want to be on the curve?

When investors fret about oil and inflation, the comparison is always the 1970s.

That's kind of where they go to.

And when they fear credit blow-ups, the comparison is 2008, Cathy.

Not everything is so extreme, though.

I mean, those are pretty extreme examples.

What kind of risk does that create, that tendency to go to the most extreme example?

George, do you think it's appropriate to talk about stagflation late?