FED: Hammack, Harker Suggest Patience From Both Ends Of Hawk-Dove Spectrum
Two FOMC members from either end of the Hawk-Dove spectrum reiterated Thursday that they saw no rush to adjust rates, preferring to wait until data bears out such a move. (Markets currently price just over 2x cuts this year, starting in July.)
Philadelphia Fed President Harker (dove, non-2025 voter, retiring in June) sounded in no rush to cut rates (though interestingly caveats "in either direction"): "I am of a position that we let monetary policy continue to work...the policy rate remains restrictive enough to continue putting downward pressure on inflation over the longer term, as we need it to, while not negatively impacting the rest of the economy. And the caution I am taking is to look at all the data and not be moved to act, in either direction, based on one report covering one month."
- The last comment refers to January's stronger-than-expected CPI price pressures, but as he said previously, that report may have been skewed by seasonal adjustment issues.
Earlier, Cleveland Fed President Hammack (hawk, non-2025 voter) said she didn't believe policy was "meaningfully restrictive", echoing comments she's made previously. "I believe that monetary policy has the luxury of being patient as we assess the path forward, and this will likely mean holding the federal funds rate steady for some time. We have made good progress, but 2% inflation is not in sight just yet."
- She notes upside risks to inflation, while repeating that rates may be at/near neutral. "As long as the labor market remains healthy, I am looking for broad-based evidence that inflation is sustainably returning to 2% before adjusting policy further. While there are good reasons to expect that inflation will gradually come down to 2% over the medium term, this is far from a certainty, and upside risks to the inflation outlook abound."
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FED: Some Analysts Eye Value In Positioning For March Cut (2/2)
Few analysts that we have seen expect a cut in March, though some eye dovish potential in positioning for one - vs current pricing of around 25-30% of such a move.
- Morgan Stanley's January FOMC preview for example highlights that they see 25bp cuts in March and June.
- "Our economists think Powell keeps a March rate cut on the table, we think risk premiums embedded in market prices should skew to more cuts than projected in the dot plot. We continue to suggest positioning for a March FOMC rate cut...Maintain receive March FOMC meeting OIS at 4.28. Maintain long April fed funds futures contract (FFJ5) at 95.735." (Note those levels are little changed from publication on January 23).
- In addition to MS, ABNAmro, Commerzbank, Danske, Nomura, and UBS forecast cuts in March.
| Meeting | Current FF Implieds (%), LH | Cumulative Change From Current Rate (bp) | Incremental Chg (bp) | Post-Dec FOMC (Dec 18) | Chg Since Then (bp) |
| Jan 29 2025 | 4.33 | -0.3 | -0.3 | 4.31 | 1.9 |
| Mar 19 2025 | 4.25 | -7.9 | -7.6 | 4.22 | 2.7 |
| May 07 2025 | 4.18 | -15.5 | -7.6 | 4.18 | -0.7 |
| Jun 18 2025 | 4.06 | -26.6 | -11.1 | 4.12 | -5.4 |
| Jul 30 2025 | 4.01 | -32.2 | -5.6 | 4.10 | -9.2 |
| Sep 17 2025 | 3.93 | -40.1 | -7.9 | 4.06 | -13.0 |
| Oct 29 2025 | 3.89 | -44.5 | -4.4 | 4.04 | -15.2 |
| Dec 10 2025 | 3.84 | -49.2 | -4.7 | 4.01 | -16.9 |
CANADA: Macro Since The Last BoC: Inflation - 3-Month Core Running Above Target
- There have been two CPI reports since the last BoC meeting, with the BoC’s preferred core services (average of median and trim) surprisingly strong in November before moderating as expected in December in Y/Y terms.
- Headline was also close to median expectations in December, impressive considering the wide range of analyst views on the back of uncertainty over the impact from the temporary GST/HST tax holiday.
- Headline CPI came in at 1.8% Y/Y in a range that spanned from 1.2-2.1% Y/Y, averaging 1.9% in Q4 vs the 2.1% BoC had forecast back in October.
- Core CPI on the other hand, whilst being as analysts expected in December at 2.45% Y/Y, has seen a sizeable overshoot of BoC forecasts with an average 2.6% in Q4 vs 2.3% projected.
- What’s more, the latest three-month run rate has accelerated to 3.5% annualized for its fastest since Sep 2023 after two consecutive months above the 1-3% target band. The smoother six-month run rate meanwhile stands at 2.8% annualized, remaining within the band but at joint highs since Jan 2024.
- Headline CPI will continue to be distorted by the temporary tax holiday in the next couple months of data although the preferred core metrics exclude indirect taxes and so shouldn’t be directly impacted by the changes.
FED: Copy - Is March “Live” For A Cut? Or Echoes Of Powell In Jan 2024? (1/2)
Is March “live” for a cut? To be sure, Powell probably will repeat what he said in December when asked about the possibility of the next move being a hike (“you don’t rule things completely in or out in this world. That doesn’t appear to be a likely outcome”). That said, the “base case” is still for a couple of cuts this year for most FOMC participants, barring further evidence that disinflation is stalling out.
- The most senior members of the FOMC have conveyed a dovish perspective on recent data, and don’t appear to be concerned with cutting rates further even if the labor market is not softening as had been feared just a few months ago. Gov Waller has been the most prominent doves on the Committee, seeing potential for 3-4 cuts this year, and possibly restarting the easing cycle earlier than market pricing implies.
- Inflation is once again the Fed’s focus at this point and the recent stabilization in the unemployment rate is seen against the broader context of labor conditions being roughly on a par with pre-pandemic levels, which ran alongside 2% inflation. While of course inflation remaining stubbornly elevated would keep cuts on the back burner, Waller and others (including Powell) appear to remain convinced that inflation is still on a path to the 2% target, even if it will take a little longer than previously envisaged. A solid labor market is a feature, not a bug, for senior Fed leadership – and is not incompatible, in their view, with inflation coming down and delivering rate cuts that get policy closer to neutral.
- Additionally, Powell probably won’t completely rule out another cut as soon as the next meeting in March, while being careful to couch any future moves as data- and outlook- dependent, and emphasizing that the Fed can afford to be patient so long as the economy and labor market remain solid.
- This could prove to be an echo of the January 2024 meeting, when Powell set a high bar to starting the easing cycle at the next meeting in March (“I would say, it is probably not the most likely case, or what we would call the base case”), and markets reacted hawkishly given that they were 50/50 priced for a March cut.
