Earnings Call, Conference Presentation, Interview
Global Rates & FX Views: CPI, Fed, & buyback implications
- Core PCE inflation is projected to remain firmer than expected at 3.0% to 3.2% year-over-year following methodology adjustments to software, legal services, and investment advice, though underlying inflation may stay "stuck" around 2.5% even after transient shocks roll off.
- One-off wireless price increases linked to AT&T are not expected to recur, while airfare and lodging volatility driven by jet fuel costs tied to the Iran conflict is anticipated to peak despite uncertain timing.
- The Federal Reserve is forecast to execute a rate hike in September to support credibility, with a total of 75 basis points in hikes for the year and an October hike remaining a possibility to lower long-term rates ahead of the election.
- Monetary policy emphasis will likely shift toward the "pace" of tightening rather than total volume to avoid market overpricing, with Chair Warsh expected to maintain a resolute and hawkish stance on continuing hikes.
- The median SEP projection is anticipated to indicate only two rate hikes for the year, with some officials potentially forecasting rate cuts next year if inflation data revisions reveal significantly lower underlying levels.
- A sustained "inflation persistence" narrative without negative feedback loops to financial conditions would be required to justify rate hikes beyond the current 75 basis point guidance, potentially driving the funds rate to 5.2% based on the Taylor rule and a peak in the "low five" percent range.
- Treasury market dynamics are expected to necessitate larger supply adjustments at the November refunding meeting as buybacks are viewed as insufficient, with a buyer base remaining highly sensitive to spread levels within aggressive investment funds.
- Long-end yield curve positioning is expected to favor forward starting real yield flatteners and a rally if the Fed successfully establishes inflation credibility, while Treasury acting as a "policing force" may temporarily reduce 30-year tail risk fears.
- Survey data indicates that 70% of respondents consider fiscal consolidation a realistic action to stabilize global long-end rates, while over 80% believe current Chair communications are ineffective in achieving desired monetary outcomes.