Earnings Call, Conference Presentation
Post NFP Call
- The unemployment rate is projected to hold near 4.2% in coming months before settling within a 4.3% to 4.4% range by year-end 2026 according to Fed projections.
- Future rate hikes may occur in July if core PCE inflation is strong, and the case for hikes will persist through year-end if core PCE remains at 3.3% and unemployment stays at or below the SEP projection.
- Current market pricing assumes 37 basis points of rate hikes over the next year, though this forecast could rise if inflation proves sticky, does not fall quickly, or if the labor market shows unexpected strengthening.
- A revision to inflation data is anticipated to address only temporary one-off factors, and the labor market is expected to remain solid without accelerating quickly, preventing a "hot" appearance.
- Market sentiment has shifted toward the view that the Fed has more time to assess data, reducing pressure for immediate action, with total anticipated hikes for the next year revised downward from roughly 45 to 37.
- If upcoming US economic data, including ISM services and inflation readings, turns soft, the rate market may experience short covering, whereas insufficient pricing of future hikes could cause front-end rates to rise.
- An increase in front-end rates is expected to result in a flatter yield curve and elevated US rates relative to G10 peers, particularly Europe, Canada, and Australia.
- The US economy is forecast to remain a relative macroeconomic outperformer among G10 regions, supporting the US dollar through gradual repricing over the coming months.
- Speculator positioning in the dollar has shifted from flat to the high end of net long over the last six weeks, with the currency expected to trend higher at least through the summer despite current positioning.
- While rate hike narratives may fade in other G10 economies as headline inflation drops with oil prices, the US dollar is expected to benefit from relative economic strength and persistent inflation goals.
- USMCA trade negotiations are expected to be drawn out, creating uncertainty that will likely impact the Canadian economy more negatively than the US economy.