Powell Takes Hawkish Tone at IMF Appearance, Fed Futures Expectations Rise

Chairman Powell appeared before the IMF, and he echoed a more hawkish tone that has been evolving in Federal Reserve commentary over the past weeks. He said he believed it was appropriate to move a little more quickly than his previous comments. Let’s remember that as recently as December the expectation was only for 75 bps of hikes for 2022. That’s now gone up to around 2.5%. The comments weren’t necessarily a surprise to the market. Powell’s words make it all but assured that the Central Bank will be raising by 50 bps at the May meeting. If there was any doubt about which side of the mandate the Fed will be prioritizing in the coming months, Powell made it clear when he said, “It’s absolutely essential to restore price stability.”

Correspondingly, hawkish Fed watchers have gone from advocating 50 bps hikes to advocating 75 bps hikes. Jeremy Siegel appeared on CNBC this morning and said the Fed should raise 75 bps and that it’s best to “take your medicine all at once.” Nomura said Friday that it expected the FOMC to raise 75 bps in June and July. This would bring an exceptionally high level of tightening in a short period of time. Remember the Fed only stopped buying assets last month! Other Wall Street firms will likely follow, as our Head of Global Portfolio Strategy Brian Rauscher notes, Wall Street Fed watchers will trip over themselves to be on the right side of the dove-hawk divide. He expects JPM and Goldman may be the next to raise their expectations to 75 bps along the lines of Nomura. Rates also continued rising on the news Friday while there was the broadest equity sell-off of April so far. 

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