Investors are still digesting the Fed's moves, trying to determine whether Jerome Powell is going to ease up on the pace of rate hikes as we head into the fall. So what's the bond market telling us? And what is realistic expectations going forward? Alex Gorewicz is a portfolio manager for Active Fixed Income at TD Asset Management. Alex, always great to have you on the program. I still feel like the world is trying to figure out exactly what we heard yesterday. I mean, we all heard it. And we heard the words. But I mean this idea that the Fed could be getting near the end of this aggressive rate hike cycle, is that realistic? So look, Powell did focus a lot on the noninflation data through the Q&A. And I think that's where the markets started running with this idea that maybe it's a little bit more balanced. Maybe some even interpreted it as dovish. And so the ultimate conclusion is maybe the Fed won't raise rates as far as they're communicating. But on the flip side, he did reinforce a number of times that the best blueprint they have about where monetary policy will go to the end of this year and then even into the start of next year was already set out at their June meeting, where they gave us their updated economic projections complete with dot plots. So basically, what he said is we're kind of sticking to that. We still think that's appropriate. And since that economic projection update, inflation, if anything, has surprised to the upside, although growth has come in weaker. So again, this emphasis on growth is where the market ran with it a little bit more dovish. But what he's really saying is our inflation is-- oh, sorry-- our mandate is inflation. And that's still problematic. So 75 basis points rate hike for September is on the table. Going to just over 3% on the policy rate, could be 3 and 1/4%, 3 and 1/2% by the end of this year, is what they effectively showed back in June. That's still on the table, and then hiking even further into 2023 as things currently stand also on the table. So market heard probably what it wanted to hear rather than what he was saying. Yeah. I like what you said over there. I feel like at first year university where you're preparing an essay and you sort of [INAUDIBLE] of course that Jerome Powell was asked routinely and asked again yesterday afternoon, are you trying to engineer a recession? Is the slowdown all about tipping the economy in recession? Of course, they say, we don't want to end up there. We can't rule it out. And then today, you get GDP. And I'm not going to make you quibble about whether we use the word "recession" because this factor or that factor. But the fact is, for the first half of this year, the US economy has not been growing. And inflation is uncomfortably high. Where does this leave us? Between a rock and a hard place. That's probably the best way of characterizing it. And what's interesting is when you look at the GDP prints from Q1 to Q2 and now as we're heading into Q3, each one of them has a different source of weakness. So in Q1, it was an external source. And that's why everybody said, well, let's not make a big deal about this because the domestic economy is still strong. This time around, if you delve into the details, it was an inventory drag. Companies built up their inventories a lot in the second half of last year and then in the first quarter of this year, so that's now actually been a drag, although there was some weakness in residential investment as well, which is, again, a domestic factor. OK. So maybe at the margins, things are not just external-led in terms of weaker economic growth. And then another thing that we've noticed is that if you look at personal consumption, although still positive and contributing positively to GDP, every single quarter over the last three quarters, it's steadily gone down. Could it be flat in Q3 or could it even be negative? That would be a real surprise. To the extent that every additional quarter showing that GDP weakness is coming from domestic factors, that makes it much, much harder for the Fed to say, well, we could debate the technicalities of what a recession is. However, on the inflation side, to address that part of your question, still very high. There are signs that it is rolling over, particularly when we look at core inflation, although we know that the official mandate of the Fed has to take into account headline, which means things like energy and food prices are incorporated in the inflation numbers that they have to try to bring down. But the problem with high inflation at the moment as far as the Fed is concerned is that the labor market is too tight. And this Powell said repeatedly yesterday. He would like to see some softening of the labor market, which they think would put less pressure on the price side of the equation. So given that what we heard from the Fed yesterday and Jerome Powell, given what we're seeing out of the American economy, what is the bond market telling us about the direction that we're moving in? So I kind of alluded to how investors took the-- GREG BONNELL: They hear what you want to hear. The hear what you want-- The bond market, they're supposed to be smarter than that, right? Yeah. Yeah. Well, technically, the yield curve has inverted, although not every single point on the yield curve has inverted. The three-month 10-year, which is the New York Fed's favorite recession predictor from the bond market, is still slightly positive. But if we look at the entirety of the yield curve, more than 50% of the yield curve is already inverted and has been for some time. So the bond market has been saying-- you know, I'd like to pat ourselves on the back and say we're very smart. We've been saying for some time that this is going to happen. But when we think about the fact that stocks rallied yesterday, implied volatility in equities, in fixed income, they all fell, those are usually positive developments. Credit spreads tightened-- again, positive developments. So most investors are saying, well, the reaction is, on balance, constructive because the Fed won't overtighten and won't be necessarily the cause of that recession. And in fact, it could also be interpreted that a lot of investors are saying, well, maybe the pivot from the Fed will come a lot sooner than what they're suggesting at the moment. And that's what happens when you say, we're not giving forward guidance anymore. Now we're going to be truly data dependent. We're going to make decisions meeting by meeting. So then investors will take the data and run with it. And right now what investors on average are saying is that growth is more of a factor. So interest rates fell. Credit spreads tightened. Risk rally didn't in general yesterday. But what was kind of interesting that not a lot of people talked about was that inflation break-even, which is basically the market's inflation expectations view. That actually went higher. So it could be that some niche investors are saying, well, now hang on. Even if inflation is showing signs of rolling over, where is it rolling over to? Is it rolling over fast enough? And what does that mean for the Fed if we get into a recession but inflation is still far away from their target? What kind of easing could they possibly provide? And if they do ease, is that actually a mistake and inflation expectations should move higher?