STIR: Fed Pricing A Little More Dovish After CPI Took Edge Off Bessent's Comment
Jul-15 13:04
Fed pricing sees a modest dovish reaction to the CPI data, although the readings provided little differentiation vs. headline BBG survey expectations on net (but did include a 0.1ppt downside surprise for unrounded M/M core CPI & a 0.1ppt upside surprise for unrounded headline CPI).
- Unrounded supercore was pretty close to the average of a limited survey sample, with our macro team noting that it was core services that limited inflation, while core goods provided a slightly hawkish surprise (see previous bullets for greater details on the release)
- A reminder that hawkish adjustments were seen ahead of the data, after Treasury secretary Bessent’s left some feeling that there may have been a more hawkish surprise in the offing.
- We suggested that he may have just been referring to a roughly in-line print given consensus expectations for a move higher across the major CPI metrics vs. May levels. This seems to have been proven true.
- FOMC-dated OIS shows 1bp of easing for this month’s decision, 16bp through September, 31bp through October and 47bp through year-end.
- That compares to 1bp, 15bp, 29bp and 46bp ahead of the data and 1bp, 17bp, 31bp and 49bp before Bessent spoke.
- SOFR-implied terminal rate pricing at 3.22% vs. 3.25% ahead of the data and 3.23% pre-Bessent (corrected from 3.33% when previously published).
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US FISCAL: Available Extraordinary Measures Pick Up Ahead Of Tax Date
Jun-13 20:42
Treasury had $144B in "extraordinary measures" available to keep the government financed as of June 11 per a release Friday. That is up from $84B a week earlier and the highest since April 28.
- However, TGA cash continues to fall, to $309B latest (lowest since early April) Combined with a pullback in Treasury cash ($376B), keeping the total resources available to avert an "x-date" in the summer at around $450B .
- There will be another uptick in Treasury cash in the coming days, and it's likely Treasury allowed some of the extraordinary measures to be rebuilt (ie not exercised) in anticipation of more cash coming in.
- This is likely to be the last major uplift before the summer at which point x-date speculation will pick up if Congress hasn't passed a debt limit increase by then.
FED: Two Cuts Priced This Year Headed Into FOMC Week
Jun-13 20:28
As we head into the June Fed meeting week, market pricing is reflective of the FOMC’s messaging (that we describe in our preview):
- The next cut is only fully priced by the October FOMC meeting, with September seeing a roughly 80% implied probability of bringing the next 25bp reduction.
- Exactly 50bp of cuts are priced through end-2025, implying two Q4 cuts.
- That’s a shift from just after the May meeting, after which the next cut was fully priced by September, and there were closer to three cuts priced for the rest of the year.
- Overall cuts are seen backloaded this year (after 15bp in September, 29bp of cuts priced in Q4 - Oct/Dec combined), but falls off in Q1 (just 21bp cuts priced, 9bp of cuts priced for January and 12bp for March)
FED: Summary Of Economic Projections: Higher 2025 Inflation, Weaker Growth
Jun-13 20:21
The MNI Markets Team’s expectations for the updated Economic Projections are below.
- As of the May meeting, the Federal Reserve staff – whose outlook tends to be broadly shared by the median Committee member – revised their forecasts for growth weaker in 2025 and 2026, “as announced trade policies implied a larger drag on real activity relative to the policies that the staff had assumed in their previous forecast. Trade policies were also expected to lead to slower productivity growth and therefore to reduce potential GDP growth over the next few years. With the drag on demand expected to start earlier and to be larger than the supply response, the output gap was projected to widen significantly over the forecast period. The labor market was expected to weaken substantially, with the unemployment rate forecast moving above the staff's estimate of its natural rate by the end of this year and remaining above the natural rate through 2027."
- On inflation, "The staff's inflation projection was higher than the one prepared for the March meeting. Tariffs were expected to boost inflation markedly this year and to provide a smaller boost in 2026; after that, inflation was projected to decline to 2 percent by 2027."
- Our expectations for these changes fall somewhere in between those projections and the March SEP – a slightly higher unemployment rate, substantially higher inflation in 2025 but to a lesser extent in 2026, and weaker GDP growth this year. Longer-run variables should be unchanged.
MNI Markets Team Expectations For June 2025 Summary Of Economic Projections Medians
