Research Briefing | Feb 27, 2023

Strong start to the year may alter timing of the recession for the US

The incoming data likely warrant some adjustments to the baseline forecast, particularly for the path of the target range for the fed funds rate. The core PCE deflator rose more than anticipated between December and January, which suggests that the Fed is going to raise rates more than we anticipate in the February baseline.

What you will learn:

  • There was a lot of Fed speak last week and, on net, it was hawkish. The Fed is likely frustrated that the labor market isn’t cooperating, financial market conditions have eased on net since October and the sticky parts of inflation are still accelerating.
  • First quarter GDP is tracking 2% saar because the consumer remains resilient. However, the risks are that GDP comes in lower because of the massive inventory build in the prior three months.
  • Since the release of the January employment report, financial markets have been working with, instead of against the Fed. Treasury yields are up 50bps or more for most maturities and the fed funds futures market is flirting with a 50bps rate hike at the March meeting.
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