“The FOMC is now fully data dependent and doesn’t want to pre-commit, opening the door wide for further volatility in the front end of the curve,” analysts at Rabobank explain.
“There are eight weeks until the meeting in September, with lots of economic data releases (e.g. two jobs reports, two CPI reports, lots of other activity data) and potentially numerous geopolitical updates in between. Chair Powell did however say that June’s Summary of Economic Projections (SEP) is still the best guide to the Fed’s rate path.”
“We still have some way to go to the SEP’s 3.40%: about 100 bps in total in September, November and December. Given that Powell wants to slow down at some point, this suggests that the FOMC may be thinking of 50 bps in September, followed by 25 bps in the remaining two meetings. This corresponds, in aggregate, with market pricing of 58 bps in September, 30 bps in November and 11 bps in December. We think the Fed underestimates the persistence of US inflation and will have to go faster, hiking 50 bps at each meeting in the remainder of this year.”