MUFG on Fed
Fed funds futures now price less than a 20% probability of a rate hike at this month's FOMC meeting. New York Fed President John Williams and Vice Chair Philip Jefferson expressed caution last week about back-to-back rate hikes, and Governor Christopher Waller echoed that view this week. Their views on inflation differ, but senior Fed officials are now broadly aligned on the near-term policy decision. Unless CPI released on 14 October exceeds market expectations and materially intensifies inflation concerns, it will be difficult to see a revival in rate hike expectations or another leg higher in the dollar. Chair Warsh's speech will attract considerable attention in this regard, although his reluctance to pre-empt policy decisions means he may offer few clues ahead of the FOMC meeting around two weeks later. We expect broad dollar strength would likely push the USD/JPY above its closely watched 200-day moving average if the CPI and Chair Warsh's speech instead trigger a sharp reversal in expectations and markets once again come to expect an October hike.
Fed funds futures now price less than a 20% probability of a rate hike at this month's FOMC meeting. New York Fed President John Williams and Vice Chair Philip Jefferson expressed caution last week about back-to-back rate hikes, and Governor Christopher Waller echoed that view this week. Their views on inflation differ, but senior Fed officials are now broadly aligned on the near-term policy decision. Unless CPI released on 14 October exceeds market expectations and materially intensifies inflation concerns, it will be difficult to see a revival in rate hike expectations or another leg higher in the dollar.
Chair Warsh's speech will attract considerable attention in this regard, although his reluctance to pre-empt policy decisions means he may offer few clues ahead of the FOMC meeting around two weeks later. We expect broad dollar strength would likely push the USD/JPY above its closely watched 200-day moving average if the CPI and Chair Warsh's speech instead trigger a sharp reversal in expectations and markets once again come to expect an October hike.