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Free AccessFOMC Likely To Take The 25bp The Market Gives Them Post-CPI
Pretending for a moment that we weren't in the midst of a US banking crisis, the February inflation report would have cemented at least another 25bp March Fed hike with probably at least a 50/50 chance of a half-point raise as hinted by Powell last week.
- Going into next week's FOMC meeting, there is certainly no evidence of monetary tightening producing a decisive reversal in inflation pressures yet.
- There was some category-by-category volatility contributing to the slightly-above-expected core print (both overall and the narrower non-housing core services metric eyed by the Fed), which blunts a decisively hawkish takeaway.
- But now that we're through the key pre FOMC data, and given that there is an ongoing banking crisis, a 25bp hike seems like the central outcome for next week, though that's as things stand today and not a foregone conclusion given financial stability developments. A 50bp hike or a cut look unlikely now.
- It's possible the FOMC decides to pause with a pledge to resume hiking if appropriate, though judging from the last press conference, that doesn't seem to be Powell's favored approach.
- And with inflation still way above-target, combined with the strong Feb jobs report, there will still be many FOMC participants eyeing the risks of undertightening being greater than those of overtightening at this juncture - even with the banking shock tightening financial conditions.
- So if current pricing (80% prob of a 25bp hike) persists the next few days, the FOMC will take what the market is now "giving them" in a cautionary 25bp raise with a pledge of a true meeting-by-meeting approach going forward as they assess the lagged impact of existing tightening.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.