Another Federal Reserve official, Mary Daly has lined up with those who favor following last week’s 75 bp interest hike. “Seventy-five in July is where I’m starting because I think that right now, that looks like what we’ll need to do,” she said. “How much additional tightening will be required depends on a number of factors that fall outside of the Fed’s direct control, including the speed and magnitude of supply chain recovery, the duration of the war in Ukraine, and the willingness of individuals who have left the labour force to reenter,” she said.
The U.S inflation need to cool or more pain to come
FED Chair Jerome Powell sees two possible economic and monetary policy paths over the next year: With some luck, inflation will cool with the help of more supply. But if that fails, the Fed will proceed with a more painful solution by hiking rates to a level that will brake the economy.
In the best-case scenario, the Fed’s front-loaded interest-rate hikes slow demand for rate-sensitive sectors like housing, cars and other durable goods bought on credit. Then, supply disruptions ease over time and come back into a better balance with demand. In Powell’s view, there is a chance that price growth can slow quite quickly, helping the Fed reduce inflation toward its 2% target.
What’s in the pipe?
- China industrial profits, US durable goods, Monday
- San Francisco Fed President Mary Daly comments, Tuesday
- ECB President Christine Lagarde, Federal Reserve Chair Jerome Powell, BOE Governor Andrew Bailey and Cleveland Fed President Loretta Mester are due to speak at the ECB event, Wednesday
- US GDP, Wednesday
- St. Louis Fed President James Bullard speaks, Wednesday
- China PMI, Thursday
- US consumer income, PCE deflator, initial jobless claims, Thursday
- Eurozone CPI; US construction spending, ISM Manufacturing, Friday
USD/JPY @ 134.89 - Bullish trend
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AUD/USD @ 0.6918 - Bearish trend
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