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Harker In Line With Pricing To Year-End But Sees Restrictive For A While

FED
  • Fed Funds implied hikes are little changed for the Sept FOMC (67bps) but continued Fedspeak of higher rates for longer helps push the terminal rate nearer to yesterday’s highs.
  • It currently prices 128bps of hikes to 3.61% and 144bps to 3.77% in Mar’23, largely pausing in May before the same 35bps of cuts to end-2023.
  • Harker (’23 voter) is most recent with a broadly similar view to the market, telling MNI he wants rates above 3.4% by year-end - coincidentally the June SEP’s median end’22 dot – and to sit at restrictive ‘for a while’ before rate cuts. Being the first time on mon pol matters since Jun 22 it's hard to get sense of a recent change in view but it puts him in a similar camp to Bostic ('24) earlier looking for rates of 3.50-3.75% at year-end.
  • There are ‘glimmers of hope’ that inflation is easing but still a ‘long way to go’ to get it under control, eyeing headline inflation of 5.5% and above 3.5% for core at year-end.
  • On potential Sept FOMC action, Harker waits for data to decide on 50bp or 75bp, but notes a 50bp move would still be ‘very substantial’.
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