50bps Next Year Is Dovish, so What Is Hawkish?
- By Jon Turek
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- 5 min read
The Fed will hike next year, and the front-end distributional shift is currently a key market theme. We must start with the October CPI number. In theory, it should have changed little – just in theory, of course.
Fed Chair Jerome Powell told us at the November FOMC meeting their knock-in for real hawkishness is longer-term inflation expectations, not spot inflation (yet), and those have not risen ‘materially and persistently’. Powell said he and the Fed expect spot inflation to continue until Q2 or Q3 of next year.
The problem is that this plan is an implicit bet that 6.2% inflation will not alter expectations. And the market rightly assumes this will be tricky for Powell to hold. That is, we are at the point where spot inflation just has to be a risk to medium-term inflation expectations in a ‘material and persistent’ way.
The Fed will hike next year, and the front-end distributional shift is currently a key market theme. We must start with the October CPI number. In theory, it should have changed little – just in theory, of course.
Fed Chair Jerome Powell told us at the November FOMC meeting their knock-in for real hawkishness is longer-term inflation expectations, not spot inflation (yet), and those have not risen ‘materially and persistently’. Powell said he and the Fed expect spot inflation to continue until Q2 or Q3 of next year.
The problem is that this plan is an implicit bet that 6.2% inflation will not alter expectations. And the market rightly assumes this will be tricky for Powell to hold. That is, we are at the point where spot inflation just has to be a risk to medium-term inflation expectations in a ‘material and persistent’ way.
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