As of November 27, 2025, the current economic regime remains characterized by accelerating growth and re-accelerating inflation. This regime, denoted by a consistent regime intensity of 3.0, indicates a robust economic expansion coupled with rising price levels. Growth indicators show a strong year-over-year increase of 1.18% in GDP, while inflation, measured by the CPI, stands at a significant 3.11% year-over-year, with a quarterly increase of 0.35%.
Financial conditions are currently tight, with the Federal Funds rate holding steady at 4.09%, but there has been a slight easing in the 2-year yield, which decreased from 3.55% to 3.45% over the past week. This minor adjustment reflects a subtle relaxation in short-term interest rate expectations, although overall financial conditions remain constricted.
The interest rate curve remains flat, indicating minimal difference between short-term and long-term yields. The spread between the 10-year yield and the 3-month rate has narrowed slightly from 0.28% to 0.18%, with the 10-year yield currently at 4.0%. This flattening could suggest market anticipation of future monetary policy easing or reduced long-term growth expectations.
Credit market conditions are characterized by compressed spreads, with a notable decrease in the high-yield spread from 3.17% to 3.0%. The z-score for credit spreads has fallen to -0.96, placing it in the 7th percentile, indicative of an environment where credit risk is perceived to be low. This compression suggests a strong investor appetite for risk, possibly driven by the prevailing growth and inflation dynamics.
In summary, the economic landscape is dominated by strong growth and inflation pressures, with tight financial conditions and flat rate curves reflecting cautious monetary policy outlooks. The ongoing compression in credit spreads highlights a risky but stable credit environment, favoring growth-oriented strategies. Investors should remain vigilant to potential shifts in these dynamics, particularly in the context of central bank policy adjustments.
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