In last month’s fresh set of FOMC forecasts, the median on PCE inflation was 2.7% with a range of 2.5-3.4%.
They may need a re-think.
Ed Bradford highlights that one-year inflation swaps are now above 3.3% and already at the high end of the Fed’s forecasts. Now much of that is pricing in an uncertain tariff situation but +3% inflation this year is a tough look for the Fed under any circumstances.
Despite this, the market is pricing in an 88% chance of a Fed cut at the June 18 meeting. That’s because the market is equally concerned about slowing US growth/employment. How concerned they are might swing this week based on Friday’s non-farm payrolls report.