*Note Pre Non Farm Payrolls
The market could be too dovish still. There is 9bp Fed cuts priced for March and a total 33bp by May. The 150bp by year-end looks challenged. That needs a 25bp cut at every meeting this year (including March). The bulk of the US inflation decline has related to energy and goods prices -neither anything to do with Fed policy. Data from the ISM points to an industrial revival about to begin (look at the gain in new orders).
On payrolls: The US can reach the limits of the flow rater but since there are 4 mn more workers in employment today than pre-pandemic, then accumulated wages and spending power need to be taken into account.
The market only has the cut priced because it's been expecting an economic slowdown three-months forward for more than a year now. Fed Chair Powell said they would need more of the right sort of data to make a move; tat it needed to be sure inflation would sustain 2%. If neutral is just back to where it was assumed in 2015, then policy isn't as restrictive as the Fed thinks. - UBS Strategy
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