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Context Of Powell Peak Rate May Be Higher If Strong Labor Data Persists

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  • "We expect significant progress on inflation this year and it’s our job to produce it. I want to say again, we throw these numbers around but the reality is we’re going to react to the data. If we continue to get strong labor market reports or higher inflation reports it may well be the case that we have to do more and raise rates more than is priced in."
  • Whilst the inclusion of what "is priced in" would a few days ago have been somewhat dovish, the recent surge in Fed pricing has left the market more closely in agreement with the December dot plot with two further 25bp hikes fully priced for a terminal in June-July to an effective 5.13%.
  • Rates are still seen being cut to 4.78% by year-end vs the end-2023 dot of 5.1% but the context was more in terms of terminal rather than explicitly pushing back against cut pricing.
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  • "We expect significant progress on inflation this year and it’s our job to produce it. I want to say again, we throw these numbers around but the reality is we’re going to react to the data. If we continue to get strong labor market reports or higher inflation reports it may well be the case that we have to do more and raise rates more than is priced in."
  • Whilst the inclusion of what "is priced in" would a few days ago have been somewhat dovish, the recent surge in Fed pricing has left the market more closely in agreement with the December dot plot with two further 25bp hikes fully priced for a terminal in June-July to an effective 5.13%.
  • Rates are still seen being cut to 4.78% by year-end vs the end-2023 dot of 5.1% but the context was more in terms of terminal rather than explicitly pushing back against cut pricing.