VIEW: Bank Of America: The Fed Is Done Pivoting For Now, Focus On The Data

Bank of America note that “Chair Powell emphasized the need to normalize policy "expeditiously" given inflation is much too high, with lingering upside risks from the Russia-Ukraine conflict and the lockdowns in China, and an extremely strong labor market. He noted that 50bp rate hikes would be on the table for the next two meetings, while dismissing the idea of an even bigger 75bp increase. Moreover the Fed would not hesitate to raise rates above neutral -between 2-3%-into restrictive levels if warranted. This would be in line with our current base case of additional 50bp hikes in June and July and then 25bp rate hikes at every meeting thereafter; we think ultimately raising the fed funds rate to 3.25-3.50% by May 2023. At the end of the day the Fed is committed to restoring price stability.”

• “At this stage, we believe the Fed has pivoted to an appropriately hawkish stance and is likely done surprising markets for a while. We recommend focusing more on the data flow going forward, especially around labor and inflation. In particular, how far the unemployment rate falls and the evolution of trimmed mean and median inflation measures, which do a better job of tracking underlying inflation than core gauges. Wages and inflation expectations will also be critical factors to monitor.”