To The Moon

The market is confident at “skip” at the June meeting, but Chairman Powell may express hawkish views indicating that the Fed is still prepared to continue raising rates when necessary.

Investors need to closely monitor the upcoming CPI report because if the data exceeds expectations, it will have an impact on whether there will be a rate hike in June.

The consensus for May CPI and core CPI is 4.1% and 5.3%.

Headline CPI of 4.1% is much lower than the previous data of 4.9%; core CPI remains elevated at 5.3%, lower than the previous data of 5.5%.

However, there is still debate regarding the path of rate hikes, and the market expects at least two more 25-basis-point rate increases. 

The pause should not be seen as the end: 25bps in July and more?

The path of future interest rate hikes remains contentious, with some investors viewing the June pause as a precursor to a halt, while a recent survey suggests that there will be at least two more 25-basis-point rate increases this year.

Some investors are starting to anticipate a "skip-stop-pivot" scenario.

Morgan Stanley points out that

Fed have lowered market expectations for the terminal rate to 5.3%, indicating that many investors indeed see the pause as a potential precursor to a halt. 

However, according to a survey of economists by the Financial Times, economists believe that

FOMC will need to take more aggressive action than expected to curb inflation, with at least two more 25bps rate hikes expected this year. 

Goldman Sachs analyst Jan Hatzius, in a report on Thursday, predicted that

Fed would pause rate hikes in June, followed by another 25 bps in July.

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