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NatWest Call For Final Hike In July Before 50bp Cut In December

US OUTLOOK/OPINION
  • In light of the still-sticky inflation and solid-enough jobs data, we now think the Fed is likely to hike again in July (+25bps) after the June pause and see a terminal rate of 5.25-5.50% (up 25bps from our earlier assumption of 5.00-5.25%).
  • Despite 2/3rd of the FOMC members expecting an additional 50bps of tightening this year, we are reluctant to extrapolate any further tightening past the July FOMC meeting.
  • In past cycles, Fed guidance has not been especially helpful in predicting where policy goes—data will drive policy. Our core view continues to be that core inflation will lose momentum over the summer, which will allow the FOMC to keep rates on hold as the economy slips into recession and the unemployment rate start to rise.
  • Against that backdrop, we expect Fed officials will start to unwind restrictive policy and begin easing at the December FOMC meeting (-50bps).
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