Ben and Dominique examine the tension between market pricing for Fed rate hikes and economic realities, warning that pushing additional rate increases could invert the yield curve and signal an impending recession. They analyse upcoming PCE data revisions expected to lower core inflation, arguing that sticky services costs stem from structural factors like a lack of corporate competition rather than labour market pressures. While consumer spending remains solid, Dominique highlights that it is being sustained by a declining savings rate rather than strong real income growth, though full employment allows the Fed to maintain its policy recalibration. Looking ahead to non-farm payrolls and a heavy slate of upcoming Fed speakers, Dominique notes that productivity-adjusted wage growth should keep the labour market non-inflationary.
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