Current Fed Pricing Reflective Of SEP, CPI To Headline This Week

FOMC-dated OIS is pricing ~63bp of cuts through year end i.e. 3x 25bp cuts is ~50% priced, with ‘only’ ~90% odds of a single 25bp cut priced through the July FOMC.

• The Fed’s median dot looks for 75bp of cuts this year, although that median is only one dot away from showing 50bp of cuts. Current market pricing is reflective of that narrow differential.
• Wednesday’s CPI report provides the next key data input (expect our full preview to be released the next 24 hours), with hawkish confirmation here probably a pre-requisite re: any further extension of the post-NFP hawkish repricing.
• The surprise acceleration in core CPI and PCE measures over the first two months of the year has seen most FOMC participants show less confidence re: a sustainable return to 2% inflation.
• Core CPI accelerated to 4.2% and 3.9% annualized over 3- and 6-month run rates as of February. A consensus print (+0.3% M/M) would see the 3-month measure nudge a little higher (to 4.3%) whilst the 6-month metric would inch a tenth lower.
• Many of the FOMC haven’t set a high bar to cuts, with Fed Chair Powell providing little pushback against the idea of a cut come the end of the June meeting. He also seemed comfortable with current financial conditions.
• Powell recently noted that the January-February CPI/PCE data “haven't really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road toward 2%."
• Logan & Bowman remain at the hawkish end of the spectrum, positions they reinforced on Friday, post-NFPs.