Economists at Wolfe Research provided their views on the Federal Reserve’s outlook following comments from Fed Chairman Jerome Powell.
Powell maintained a dovish stance yesterday, consistent with statements he made the previous month. He noted the ongoing rebalancing of the labor market, characterized the current policy rate as restrictive and suggested that inflation in services, excluding housing, could remain above 2% even as headline inflation returns to the 2% target.
Powell expressed confidence that inflation will continue to decline, albeit at a slower pace than desired.
Following his remarks yesterday, the market’s attention now turns to the April Consumer Price Index (CPI) report, which is scheduled to be released later today.
After three straight months of above-expected inflation data, the consensus for the April CPI is narrow, indicating that even a small deviation from expectations could lead to large near-term swings in stock prices.
While this morning’s CPI report could trigger some big changes in the short term, we don’t expect to turn bearish until it becomes clear that either (1) the US is heading into recession or (2) the Fed will raise inflation to curb inflation “Wolf said economists said.
“Neither is part of our base case scenario!”