Federal Reserve: Dovish repricing on data and inflation focus – BNY

John Velis at BNY Markets reiterates that he expects no Federal Reserve rate hikes this year, even as risks remain skewed to the upside. A weak US jobs report has reduced the implied probability of a September hike and trimmed tightening priced along the curve, but upcoming CPI and PPI releases remain central to the Fed’s rate deliberations.

No hikes view, data-dependent path

"We maintain that there will be no rate hikes from the Fed this year, even though we acknowledge that the risk is to the upside."

"Last week’s poor jobs report contributed to a slightly more dovish expectation for the funds rate. The probability of a September hike has fallen from more than 70% at the end of July to around 50-50 as of this writing."

"Further out the curve, the market has also taken out some tightening – from more than two hikes by this time next year to something below that now, closer to 1.8 by next July."

"Inflation is clearly the more important variable for the Fed to consider in its rate deliberations, and we’ll get more news on that this week with CPI and PPI to come out on Wednesday and Thursday respectively."

"Should we see some disinflation later this week, we would expect the curve to reprice more dovishly."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)