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PIMCO: U.S. Federal Reserve Preview

Important week with Federal Open Market Committee (FOMC) and payrolls. We expect to see some temporary drivers behind another solid payroll report, while wage inflation data will be closely watched for gauging the Fed outlook. At Wednesday’s FOMC meeting we expect the Fed to slow the pace of rate hikes to 25 basis points (bps), while Powell uses the press conference to signal that the inflation fight is not yet over.

This Week:

The Fed releases a new FOMC statement at 2pm EST on Wednesday. No dot plot or economic projections at this meeting. We expect the Fed to slow the pace of rate hikes to 25 bps, a modestly dovish statement changes, and a relatively hawkish press conference from Chair Powell.

Economic Data:

The Employment Cost Index (ECI) will be in focus ahead of FOMC. We see downside risks to consensus expectations (0.9% vs. 1.1% consensus), which would be very welcome news for Fed officials concerned about underlying inflationary pressures. We think the Fed will be closely watching this report for further signs that wage inflation may have peaked.

We see temporary reasons for another solid employment report – we’re looking for somewhat above consensus 225k payroll gains, in line with last month’s pace. Our forecast would see the unemployment rate (3.5%) and average hourly earnings (0.3% m/m) both unchanged.
Source: By Tiffany Wilding, North American Economist, and Allison Boxer, Economist, at PIMCO

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