The Fed’s motto ought to be “too little, too late”, because that is the reality. To use the words “hawkish” and “Fed” in the same sentence is laughable.
- If we were to play this inconsequential short-term game of a 50 vs. a 75 basis point hike in September we would guess 75 basis points. Core CPI is likely to accelerate in August from July’s level. Core + Food is also likely to accelerate. Thus the Fed – already well behind the curve – is likely to go tighter, not lighter.
- Our preference would be for the Fed to quickly get the Fed Funds Rate in-line with the 2-Year Treasury while simultaneously trimming its Balance Sheet at the same pace it expanded it during 2020 and 2021 (this is not the case, the Fed will shrink its Balance Sheet at a slower pace, approximately $95 billion in monthly reductions vs. $120 billion in monthly additions during its recent QE phase).