Markets may soon enter that pre-CPI trance mode, but the mood music is certainly not about a Fed in dovish transmission.
Fed officials are unquestionably concerned about the unexpected easing of financial conditions, which, if sustained, could complicate their effort to restore price stability. Leaning against this easing was one reason officials were motivated to send a clearly hawkish signal through the dot plot.
Fedspeak so far this year has mostly reiterated Chair Powell's hawkish messages from the December FOMC meeting. Weighing on US equity sentiment overnight and so far today in Asia, officials continued to push against any thought of premature cuts this year in an attempt to tighten financial conditions or send stocks lower, if you may.
And while the consensus is likely content with the sharp falls in headline inflation, the Committee is keeping a close eye on non-housing core services that are highly correlated with the tight labour market. Indeed, Daly indicated that this category's more remarkable inflation persistence pushed her to raise her inflation forecast in the December SEP despite falling headline and core prints. And overnight, she confirmed that bias, much to the chagrin of the soft-landing camp.
While the market may take some comfort in a 25 bp step down at the February FOMC, with higher for longer still ringing loudly in the background, recessionistas still hold sway.
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