2024-03-24 23:16:00
Investing.com – After this week’s dovishness, which gave the green light to bet on further interest rate cuts, key colleagues at the Federal Reserve are set to take center stage, likely adopting a hawkish tone to send Treasury yields higher.
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“We believe spokespeople over the coming weeks are likely to tilt to the hawkish side, particularly on the longer-term path of interest rate policy – which could be material for yields,” Macquarie said in a recent note.
Following the Fed’s decision to keep interest rates unchanged at its March 20-21 policy meeting and continuing to point to three rate cuts this year, Powell leaned into a dovish stance, dismissing the recent upward surprise in inflation seen in January and February as bumpy.
“Powell’s ‘dovish’ tone was somewhat surprising to us, and may have been at odds with the thinking of other Fed policy officials,” Macquarie added, pointing to the jump in the overnight index swaps market that priced in an 85% chance of four cuts in a year. 2024.
But the Fed’s updated summary of economic forecasts, which shows Powell’s Fed colleagues expect stronger economic growth, higher inflation and a modest rise in the long-term interest rate, offers clues to “what other Fed officials were thinking,” says Macquarie, who He paints a much less pessimistic picture than the one presented by the Fed chairman.
Macquarie said the upward revision to the Fed’s economic outlook, interest rates and risk allocation points to a “somewhat more hawkish Fed lurking beneath the surface of Powell’s rhetoric,” predicting only two rate cuts this year and next.
Atlanta Fed President Rafael Bostic, Fed Governors Lisa Cook and Christopher Waller, and Chairman Powell are among a group of Fed speakers on stage next week.
Minutes from the Fed’s March meeting, scheduled for April, could also highlight the difference between Powell’s dovish stance and that of his colleagues.
However, the Fed’s overall conclusion last week is that “policymakers still want to cut interest rates and are waiting for an appropriate inflation window to do so,” MRB Partners said. MRB added that “technical easing” in inflation, thanks to base effects could provide that opportunity to benefit from a window of downward core inflation on an annual basis.”
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