Fed: Extended pause message tempers hike bets – DBS

DBS Group Research’s Philip Wee says the Federal Reserve is working to cool hawkish expectations ahead of Kevin Warsh’s appointment as Chair on May 15. Officials are stressing an extended pause despite higher near-term inflation expectations from energy shocks, pointing to stable long-term inflation and wages and softer labour data, with April nonfarm payrolls seen at just 50k–100k.

Policy patience despite energy shocks

"This cooling of geopolitical heat coincides with the Fed’s strategic effort to temper hawkish expectations."

"Ahead of Kevin Warsh assuming the Fed Chairmanship on May 15, officials have sought to correct market pricing of late-2026 rate hikes by emphasizing an extended pause."

"Despite a rise in one-year inflation expectations driven by energy shocks from the Iran conflict, Fed officials maintain that current rates are sufficiently restrictive."

"With long-term inflation expectations and wage growth remaining stable, the Fed is resisting aggressive tightening, a stance supported by today’s cooling labour market data."

"Nonfarm payrolls are expected to drop to the 50k–100k range for April, a far cry from the robust readings that fuelled the USD’s surge in 2022."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)