Stronger dollar, lower equities, and flatter yield curve – BBH

The dollar continues to build on its gains after Jackson Hole. Economists at BBH maintain their strong dollar call.

Fed officials to continue their aggressive communication efforts

“The swaps market is pricing in a terminal rate close to 4.0% and we think that process is likely to continue. It's not a coincidence that Fed officials keep bringing up Paul Volcker, as the implications are clear.”

“The real 10-year yield is trading near 0.53%, the highest since July 21. Further gains would set up a test of the June 1 high near 0.82%. Elsewhere, the 3-month to 10-year curve is trading near 35 bps, the steepest since last Wednesday and off the 21 bps low from August 10. While recession risks are palpable, this key metric does not yet signal that one is imminent.”

“As we saw after the July FOMC decision and then after the FOMC minutes, Fed officials blanketed the markets with a hawkish message. We expect a similar effort after Jackson Hole. We expect each and every Fed official to stick to Powell’s hawkish script.”