BofA Sees FOMC Concerned About CPI Reacceleration; Citi Eyes Skip (2/2)

BofA: 2024 Dot Brings Hawkish Risks - BofA sees the Fed encouraged by ongoing disinflation but concerned about inflation reacceleration.

• Statement: Modest changes; job gains “have moderated in recent months but are still solid”.
• SEP/Dot Plot: 2023 dot 5.6%, 2024 4.9% with risks to upside. 2025 to 3.9%. 2026 2.9%. L-R Dot to 2.6%. Big upward revision to 2023 growth, modest downward revision to core PCE.
• Press Conference: Powell’s message will be balanced, similar to Jackson Hole. Likely to note that the job is not done and the Fed will stay the course in order to get inflation back to 2%.
• Future action: 25bp hike in November. First cut in 2Q 2024,75bp of cuts in 2024 (to 4.875%), 100bp in 2025 (to 3.875%).

Citi: Skip, Not The End - Citi sees the Fed skipping a September hike, but raising rates in November.

• Statement: Little changed. Any slight change like saying “inflation has softened but remains elevated” could be seen as marginally dovish.
• SEP/Dot Plot: Lower 2023 core PCE, 0.1pp lower 2023 unemp, near doubling of 2023 GDP forecast. Base case is that median dots are unchanged. Risk that 2024’s moves higher.
• Press Conference: Powell to reflect the idea that policy rates are now restrictive and that the discussion is shifting away from the appropriate level of policy rates and toward appropriate time period to leave them at those settings. The implication will be that policy rates may need to remain higher for longer.
• Future action: Final 25bp hike in November.