The Federal Reserve hiked its benchmark interest rate by 50 basis points in a widely expected move yesterday. Chairman Powell’s comments that the Fed is not actively considering raising rates by 75 basis points send shares soaring.
Bank of America’s top US economist Ethan Harris thinks the Fed is done pivoting for now with all the focus now shifting towards the incoming data.
“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,” Harris told clients after Powell’s press conference.
Similarly, JPMorgan’s strategists believe that “the market narrative may have shifted to peak hawkishness with CPI next week.”
In a morning briefing note sent to clients, JPMorgan says that investors will be digesting “the ramifications of 2x more 50bps hikes, slightly weaker QT, and a Fed that seemingly is returning to the data-driven approach” in the coming days.
The S&P 500 futures are down 0.6% in pre-open following a strong rally into the close yesterday.
By Senad Karaahmetovic