Fed Monitor: Dovish Domination

Summary of Key Issues

With the debt ceiling resolved, the Fed can refocus on its inflation mandate (A Good Deal for the White House, Less So for the Fed). Since the 3 May FOMC meeting, demand indicators have been strong (Chart 11), and NFP growth has stabilized at an unsustainable level (Chart 12).  At the same time, inflation is stuck in a range well above the FOMC target (Chart 10).

Moreover, the tightening of credit conditions remains in line with previous Fed tightening cycles while credit demand is weakening (Charts 7 and 8; The Recovery Is Not Credit Dependent). 

Yet the data has not changed the views of the FOMC members, with the doves seeing the disinflation bottle as half full and the hawks seeing it as half empty (Table 2). In addition, the doves have become more influential with the nomination of Governor Jefferson as Vice Chair.

The Fed has signalled it would ‘skip’ a June hike. A July hike is likely but not a done deal given the dovish bias of the FOMC. I am expecting two more hikes this year.

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Markets Under-Pricing the Fed

Economic Data Still Calls for More Fed Tightening

Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed, the IMF, and the World Bank. She joined Macro Hive soon after its inception.

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