With Treasury yields at their highest since 2008 and the Fed already hiking, the question is whether inflation finally breaks lower. VICO's forecasts say it does not, and everything else, from the Fed to mortgages, follows from that.

The model does not see inflation taking a significant turn lower before year end, with war-and-tariff price pressure still in the system, giving just a 22% chance that CPI falls below 3.3% in 2026.

With inflation sticky, VICO expects the Fed to keep tightening rather than ease, putting another 2026 rate hike at 78%, a notch below the market.

And with the Fed leaning hawkish and price pressure persisting, the model expects long-term yields to stay elevated, at 78% for the 10-year finishing the year at or above 5%.

Elevated yields are expensive for the government, pushing the cost of servicing the national debt to new records.

They are just as painful for households, keeping borrowing costs high and the housing market frozen.