Reversal Shocks

Notwithstanding a Monday bounce triggered at least in part by a robust ISM services print which suggested the most important part of the US economy (where the "sticky" inflation lives) isn't close to rolling over, the dollar is mired in a pretty deep slump. In fact, another decisive move lower would threaten to negate the entirety of the rally seen since Nick Timiraos tipped the Fed's intention to hike rates by 75bps for the first time since 1994 in June (figure below). Already, the greenback
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2 thoughts on “Reversal Shocks

  1. “…the Fed continues to push some version of a narrative that says terminal is at least 5%, and rate cuts aren’t likely at any point in 2023.”

    I don’t envy anyone who is working in the real estate or mortgage industries if that holds true.

  2. “a narrative that says terminal is at least 5%” – a 5 handle seems pretty likely to me, being just a couple of 50s and a 25 or two away, with inflation past its peak but the dragon still rampant.

    “and rate cuts aren’t likely at any point in 2023” – for the Fed to cut rates, I think it needs to see the inflation dragon in its last throes and the economy entering a recession. That seems reasonably plausible for late 2023.

    It seems to me that since realizing that inflation was not transitory, the Fed has been fairly steadfast in its direction, while it has been the markets that have bounced between “believing” and “not believing” the Fed’s message.

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