VIEW: Rabobank Post-Powell Address

Rabobank note that “Powell made his pivot just in time, because of three data points as he explained at the December post-meeting press conference. Of course, not because he felt any political pressure. If he still had any doubt about his change of mind, today’s hearing made clear that the Fed can no longer get away with the transitory narrative. It is clear that the Fed is eager to show its newfound inflation fighting belief, which makes March a live meeting for the first rate hike. We could also see the start of balance sheet reduction as soon as in May. The FOMC wants to avert inflation becoming entrenched so it needs to signal that it is taking the fight against inflation seriously. However, if the Fed is right that inflation will ease later this year, the urgency to tighten policy may ease as well. After all, they have been ‘hawks’ for only a short time. So while the FOMC has worked hard to increase the credibility of their rate projections for 2022, they still have a lot of convincing to do for the remainder of their projected rate trajectory.”