Wolfe Research economists provided their insights on the Federal Reserve’s outlook following comments made by Fed Chair Jerome Powell.

Powell maintained a dovish stance yesterday, which was in line with his previous month’s statements. He noted the labor market’s ongoing rebalancing, described the current policy rate as restrictive, and suggested that services inflation excluding housing could stay above 2% even as overall inflation trends back towards the 2% target.

Powell expressed his belief that inflation would continue to decrease, albeit at a slower pace than desired.

Following his remarks yesterday, the market’s focus now turns to the Consumer Price Index (CPI) report for April, scheduled for release later today.

Following three consecutive months of higher-than-expected inflation data, the consensus for April’s CPI is narrow, indicating that even a slight deviation from expectations could lead to significant short-term fluctuations in stock prices.

While this morning’s CPI report could spark some big near-term moves, we don’t anticipate turning bearish until it’s clear that either (1) the U.S. is heading for recession, or (2) the Fed will hike to tame inflation,” Wolfe economists said.

“Neither are part of our base case!”


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