Morning Brief – Markets Braced For Fed Speak

The question of whether the Fed will deliver a third straight 75 bps rate hike next month or ease back slightly is currently of key importance to investors. Therefore what the Fed says is very important.

Market awaits a number of Fed speakers this week, with Chicago Fed President Charles Evans highlighting the list of top speakers from the United States central bank who remain hawkish.

Chicago Fed President Charles Evans recently said that US interest rates “are higher, but they’re not necessarily tight,” which of course indicated to markets that he thinks the Fed has room for more aggressive action.

If we see Evans taking a similar line after recent data then it is possible we could see the market reacting according with a pullback in stocks and move higher in the US dollar currency.

This week we also see the Minneapolis Fed President Neel Kashkari hitting the wires. The Minneapolis Fed president says not seeing United States wage price spiral. He is adding to the hawkish tone.

The we are set to see San Francisco Fed President Mary Daly due to speak in the coming week. Her comments will be closely watched by the market. Daly is another rate hike hawk.

Daly has offered recent hawkish comments towards rate hikes saying that “We need to leave our minds open’ for September meeting.” Suggest statements are open to a wide range of interpretation.

Fed voting member Daly also said that she “Suggests 50 basis points isn’t only option on the table”. This comment is also open to either bullish or bearish interpretation for market watchers.

Just to add weight to the chorus of hawkish voices at the Fed this weekend Fed Governor Michelle Bowman said that the Fed should still consider more 75 basis point hikes.

Yesterday, the market reacting to the release of the New York Federal Reserve’s 1-year inflation expectations. Data shows that they had fallen to 6.2% from 6.8%, with inflation sensitive assets continuing the post-Fed trade.

This news helped sentiment that inflation has peaked already, further adding some credence that Fed members could start to pullback the hawkish rhetoric this week.

It remains to be seen if the Fed can continue to hike rates to tackle inflation without causing a sharp increase in the unemployment rate. The concern from markets is the labour market will need to cool to help ease price pressures.