Jerome Powell’s reluctance to countenance market speculation about a return to rate hikes is indicative of an “opportunistic disinflation strategy,” whereby the Fed doesn’t “act in the face of moderately elevated inflation, instead wait[ing] for external circumstances to return inflation to target while standing by to aggressively resist inflation turning too hot.”

That’s according to JPMorgan analysts led by Marko Kolanovic, who weighed in Monday on the outlook following a busy week across the US macro space.

Markets are likely to be sleepy in the days ahead give the dearth of fundamental inputs, but there are a number of Fed speakers on deck. My guess is that officials are comfortable with the modest reset in rate-cut pricing illustrated below.

If half a dozen cuts was a dovish overshoot in January, one rate cut was probably a hawkish overshoot ahead of the May FOMC meeting. From April 26 through May 3, traders built around 14bps of rate-cut premium back into the curve concurrent with a 15bps rally in twos.

The lean towards two 2024 cuts (versus just one) is probably about “right,” particularly given nascent signs of a labor market slowdown, assuming you think one NFP undershoot counts.

But this is very perilous balancing act for the Fed, and Kolanovic, for one, doubts Powell can pull it off. “Maintaining a balance between growth, inflation and financial conditions will be challenging and we do not have conviction in the medium-term sustainability of the expansion,” Marko and co. said.

The bank went on to cite the ULC overshoot in suggesting profit margins could come under pressure going forward. “This, in turn, could sour business sentiment and amplify any slowing in growth,” Kolanovic said. “At the same time, easing financial conditions could over-stimulate activity and raise inflation above the opportunistic comfort zone.”

JPMorgan’s strategists aren’t any more optimistic about the micro. “Analysts’ projections imply that S&P 500 EPS will rise 17% from Q1 to Q4 2024,” they remarked, in the same Monday note. “To achieve this, one needs to assume very high topline growth or a very strong expansion in profit margins. We are skeptical of both.”