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Danske saw the Fed as more hawkish than anticipated, with the June meeting most likely marking the first step of the Fed "taking the foot off the gas".
- The main reason is not that actual inflation has moved higher (the Fed says it's largely transitory), and the Fed remains calm on inflation due to still-well anchored expectations.
- Rather, it's due to labor market developments, with several indicators quite strong and Powell noting "we are on path to a very strong labour market recovery" highlighting that temporary factors are keeping job growth low.
- Future action: Danske now expects the Fed to start tapering in 4Q 2021 (vs Jan 2022 prior); first hike in 2H 2022 (vs 1Q 2023 prior).