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75bp September Pricing Firms As Powell Doesn't Push Back

FED

Fed Chair Powell didn't deviate much from previous recent commentary in his appearance at a highly-anticipated Cato Institute event, referencing his Jackson Hole speech several times. September Fed hike pricing briefly edged higher (to just under 72bp, see chart), mainly because the Chair did nothing to push back against 75bp market pricing just prior to the FOMC blackout.

  • Futures are now taking it as a given that 75bp is the path of least resistance for the meeting in 2 weeks' time, especially now the ECB's 75bp is out of the way, though of course CPI on Tuesday could throw up a surprise.
  • While Powell addressed several "structural" topics (including on the framework, the dual mandate, the scarce reserves regime, cryptocurrency and other topics), ,market focus was on current policy matters. Some comments of interest included:
    • On fighting inflation in order to keep expectations well-anchored: "We need to act now, forthrightly, strongly, and keep at it until the job is done."
    • Says that longer-run infl expectations are "pretty well-anchored", but noted the "clock is ticking" re short-term expectations
    • Says that history cautions against "prematurely" loosening policy
    • On the last nonfarms payrolls report: Says there was a welcome increase in participation rate; nonetheless still 1 percentage point below pre-crisis
    • Says that below-trend growth will bring the labor market into better balance

FOMC Sept 2022 OIS Implied Pricing Intraday (Times are BST)Source: BBG, MNI

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