Fed Policy

The Fed says that the labor market needs to cool in order to bring inflation down. A key part of the case for maintaining the current pace of rate hikes is built on high measures of wage growth. Jay Powell cited the last average hourly earnings figure as one sign

What to Expect: 1. The Fed will step down from their breakneck pace of 75 basis point hikes to a still very brisk 50 basis point pace of hikes. 2. FOMC members are likely to signal that the peak Fed Funds Rate will be above 5%, likely in the target

Market rents are decelerating, which means CPI-measured rents – and with them, core and headline CPI – should ultimately decelerate as well, with a lag. But is this deceleration due to the Fed’s actions? Or is it because job growth is slowing down endogenously, as many have been expecting over this

Summary 1. Friday's Q3 ECI release showed a modest slowdown in the pace of wage growth. Coupled with what we already knew about Q3 employment growth, we are continuing to see a slower—though still highly respectable and resilient—pace of gross labor income growth (~6.1% annualized

Two things are all but guaranteed for the rest of the week: 1. The Fed is going to hike 75 basis points (2.25%-2.50%) and signal that it remains vigilant about inflation. Their characterization of growth dynamics are likely to remain on the rosier side, and inflation expectations

Summary Although neither the magnitude nor composition of last week's inflation print surprised us, especially given the knock-on effects from the 'Ukraine shock', they did surprise the CPI forecasting consensus. In response, Chair Powell and the rest of the committee will likely deliver two innovations: 1.

Tightening global financial conditions may serve to reinforce policy tightening, and the Fed should be cognizant of the risk that hikes may have a stronger-than-expected impact in this period of elevated uncertainty.

A CPI pre-read, wherein we argue the Fed should be calibrating its tightening efforts to what current conditions are indicating.

Journalists can pretty much pre-write their headlines given the spike in oil prices. Year-over-year headline inflation readings are set to make new highs, potentially breaching 8% based on the food and energy impulse from what we might call the "Putin shock" to key commodities. At the same time,