TURKEY: JP Morgan Adjust Policy Rate Call Following September CPI

GBP STIRS & the front end of the gilt curve are unreactive to the initial comments at the BoE TSC hearing.

• Deputy Governor Lombardelli’s hawkish dissent was centred on her outlook for inflation, while both Lombardelli and fellow hawkish dissenter Greene have given some meaningful weighting to food inflation.
• Lombardelli’s comments surrounding neutral rate levels also screen a little hawkish.
• At the other end of the spectrum, dovish dissenter Taylor reaffirms his position at that end of the spectrum (he initially voted for a 50bp cut in August).
• The degree of hawkish repricing witnessed in recent weeks limits follow through from the hawkish comments, ~9bp of easing priced into BoE-dated OIS through year-end.
• SONIA futures flat to +3.0.
• UK yields 1.5-4.0bp lower on the day, at/just off session lows.

Bailey says that he places more emphasis on wage growth: "So I agree with Megan and Clare that I think Alan said as well that we have got the risk on inflation has gone up. I think where I differ a bit is that I think I'm more concerned about the downside risk on the labour market. I think there is more evidence of some weakness in the labour market coming through the pay number. The pay number came in under where we thought it would be based on the May, the May forecast. So I put a bit more emphasis on that downside risk."

• Taylor states that "the most risky channel for the transmission of inflation expectations back into inflation, actual inflation is through wage bargaining but I think given the softening in the labour market"
• He sees wage growth as slowing: "It's generally coming in in the low threes or thereabouts, and possibly lower, suggesting to me that we are completing that last mile of that trajectory."
• On disinflation is continuing but "It was a new set of shocks that we got in January, administered prices, taxes, a little bit of an energy shock, and now some food shocks. So I think I'm trying to see through that."
• He also notes that displaced goods that would have gone to the US are likely to weigh on UK / European inflation. "I think the tariff issue is a little bit undercooked in our in our baseline forecast. So there's a point of disagreement for me there."
• He also thinks that the neutral rate is lower: "I tend to think the neutral rate of interest is quite low, and so I feel we have further to go to reach neutral, which leads me to think therefore currently we're more restrictive, and that we're plenty restrictive enough to take the remaining underlying inflation out of the economy."
• "I'm more in the four plus one camp in terms of how many cuts per year, maybe four or five, rather than four minus four or three. And so I think that led me to my vote."