US macro/FOMC

Quite the rewrite of the Fed script. Tells you that things are changing with regard to the Fed’s monetary stance (“undoubtedly in restrictive territory”).

The past 6 months have seen PCE (the Fed’s preferred measure of inflation) running at an annualised rate of ~2%, at the Fed’s target, and labour market data (non farm payrolls, job openings, quit rates, hiring rates, employment to population) have moderated by an amount suggesting balance has returned (from overheated to about right, in other words, in equilibrium).

As such, there is no need to maintain “undoubtedly restrictive” and that’s why we’ve seen a re-write of the script above. They may not cut in March (could, but not certain) but May is a “near lock” in our view, with a material upside surprise (in this case, meaning bad) in the inflation and labour market data (e.g. hot prints return) being required to upset/prevent that outcome.

So, things remain “data dependant”, but we’ve no reason to assume the direction of the data is about to be altered, and thus the easing can commence.

The market took notice, and yields dropped across the board.

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