The minutes of the May meeting reveal considerable divergence of opinions regarding a possible pause in the hiking cycle. Powell’s bias toward a pause in June could keep the FOMC from hiking next month, but he may face an uphill struggle keeping his troops in line for the July meeting. In fact, if the credit tightening that Powell is counting on does not materialize, we would not be surprised if more than one additional rate hike is needed to bring inflation down to 2%. So for now, we stick to our forecast that the Fed is done for the year, but if the banks fail to deliver sufficient credit tightening, we may have to go back to our earlier stance that the Fed will have to do more to get inflation under control. As we warned in our March preview, if the downside risks from the banking turmoil subside, we will be left with those upside risks again.
- Rabobank
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