Credit Agricole on FOMC Rate - FJElite
Some investors took comfort that Warsh did not sound hawkish relative to the market’s baseline, which explains the decline in 2Y yield and curve steepening during the press conference. Fed Chair Kevin Warsh highlighted materially higher nominal and real yields, and some of the increases have been among the most significant in decades.
Limited forward guidance may have contributed. In fact, the rise in real yields has outpaced that in nominais, which is usual, compressing inflation breakevens. Accordingly, despite high energy prices, inflation expectations seem well anchored for now. Inflation breakevens are at the bottom of the trading range.
The rates market is now pricing a 16bp rate hike premium at the September FOMC meeting and 22bp at the October meeting. Implied hikes total about 50bp through mid-2027, down from almost 60bp a week ago (Figure 4).
With the FOMC meeting out of the way, the market is back to data watching. The Jackson Hole Symposium hosted by the Federal Reserve Bank of Kansas City in late August will be the next major Fed event. Warsh said he has yet to consider a Jackson Hole speech. There will be two payroll and two CPI reports before the September meeting.
