No Time to Pivot, Risks Skewed ‘Slightly Hawkish’ at FOMC Meeting This Week – Citi

By Senad Karaahmetovic

Andrew Hollenhorst, the chief U.S. economist at Citi, sees the risks tilted slightly hawkish at this week’s FOMC meeting. Citi expects the Fed to by 75bp this week, before slowing the pace to 50bp in December.

Hawkish risks are the result of red-hot , sustained wage pressure, and the recent risk asset rally, Hollenhorst said in a note. If the Fed slows the pace of rate hikes, this is likely to happen together with “hawkish rhetoric emphasizing that rates may move higher and then be sustained at these levels.”

“To the extent hawkish risk is not realized at this week’s meeting, we would see the risk of a hawkish repricing of the Fed’s policy path pushed to upcoming jobs and inflation reports and the mid-December FOMC meeting,” Hollenhorst said in a client note.

All-in-all, Hollenhorst sees a low chance of the Fed committing a dovish pivot given the recent data, including the employment cost index (ECI) that showed labor costs rising at rates above 5% annualized for the 5th straight quarter.

Therefore, Fed Chair Powell is likely to stick to the script, which should be “slightly hawkish relative to market expectations.”

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