Week Ahead – US inflation, ECB decision to test markets’ nerve
XM Group | Mar 10, 2023 07:52AM ET
CPI report could make the case for 50-bps hike
There’s been no let-up in the ‘higher for longer’ bets for the Fed after a string of hot labour market and price data, pushing expectations for the terminal rate to a new cycle high of 5.65%. Fed Chair Powell gave the thumbs up to the markets’ shifting expectations for higher rates and opened the door to a re-acceleration of the tightening pace as early as the March meeting.
Tuesday’s CPI numbers will therefore be vital as they could determine whether FOMC members vote for a 25- or 50-basis-point increase. In January, the slowdown in the CPI rate was less than expected, sparking fears that high inflation will persist for longer than anticipated. The February forecasts point to a similarly slow process as the month-on-month increases are projected at a somewhat elevated pace of 0.4% for both the headline and core CPIs.
Although the RBNZ has not followed some of its peers in toning down its hawkish rhetoric, it has already been one of the most aggressive central banks over the past year and so there is limited scope for its terminal rate to go much higher. Neither is the RBNZ likely to abruptly turn dovish, thus, there’s not a lot to price into money markets in either direction, meaning the New Zealand dollar will mainly stay attuned to the global risk tone.
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