Economics week ahead

U.S. week ahead

FOMC • Wednesday

We expect the theme of next week's FOMC meeting will be neutrality. This will be Kevin Warsh's first meeting as Chair, and we would be surprised if he rocks the boat at a precarious time for U.S. monetary policy. We doubt that Chair Warsh will be full-throated in favor of cutting rates in light of better labor market data and a core PCE deflator that is 130 bps over target. At the May meeting, the Committee debated removing the easing bias from the post-meeting statement, ultimately deciding in a divisive decision to leave it in. We believe that will change at this meeting with the removal of the phrase "the extent and timing of additional adjustments" to be replaced with something more neutral such as "In considering future adjustments to the target range for the federal funds rate, the Committee will...."

That said, we do not think most members of the FOMC, including the Chair, are ready to declare a tightening bias. Yes, the labor market data have been better lately, but there are few signs of overheating in wage growth or job openings, and the current unemployment rate (4.3%) is on the high end of the Committee's 4.0%–4.3% central tendency range for full employment. Furthermore, given that much of the excess inflation has been driven by supply shocks (tariffs, energy), we believe Chair Warsh will stress a patient and data dependent outlook in the presser.

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