ECI Provides Latest Hawkish Surprise For Fed Pricing

A firmer-than-expected Q1 employment cost reading provides the latest ‘hawkish’ input for FOMC-dated OIS, leaving ~33bp of cuts priced through ’24 vs. ~35bp pre-release.

• There was a brief dip below 30bp of ’24 cuts in the wake of the data, before the move faded from extremes.
• A 25bp cut is no longer fully priced through the November FOMC. ~21bp of easing is showing through that juncture vs. ~25bp pre-data.
• Chair Powell’s post-meeting messaging will be closely watched on Wednesday, with the recent run of data and hawkish market repricing of the Fed rate path providing plenty of pre-meeting questions.
• Powell is expected to tilt more cautious on the inflation outlook than in previous appearances, with potential flashpoints for markets including whether he acknowledges that 3 cuts are less likely to be the base case for the FOMC in 2024, and/or whether June is too early for the first cut.
• Click for our full FOMC preview: https://roar-assets-auto.rbl.ms/files/62377/FedPrevMay2024%20-%20Updated%20With%20Analysts.pdf