Despite hawkish comments by Fed officials this week, markets continue to price in a more dovish path for rates. The BoE hiked 50bps and downgraded its economic outlook, calling for a U.K. recession in Q4. Eyes will be on U.S. CPI next week to gauge whether inflation is peaking.
The FOMC bid a final farewell to forward guidance as it instead opts for meeting-by-meeting decisions, leaving markets to decipher the implication of each economic data print for monetary policy. Markets interpreted the July press conference as dovish, and Fed officials responded by striking a hawkish tone during speeches this week. Markets were unconvinced, however, as market-implied rate hike expectations and a downward trend in breakevens this week reinforce beliefs the Fed won’t be able to hike as much as the June Summary of Economic Projections suggests.
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