Market Pulse

Research evidence excerpt

Market Pulse

Higher crude oil prices would also upend central bank outlooks. While our baseline view is that Kevin Warsh and the FOMC

will wait until October to raise the Fed Funds target rate, a spike in the crude oil price is likely to shift that timing into September.

It would, as well, accelerate the timing for the ECB, BoE, and RBNZ, and BoJ. For now, we don't feel compelled to change our view,

however. Although survey-based medium-term inflation expectations in the US have risen since February, Inflation breakevens

in the US did not move higher appreciably since last week, and remain lo, giving Warsh some support if he wants to wait until

October to hike.

However, we will monitor what Fed speakers say in the run-up to the Fed's quiet period. Of course, Kevin Warsh's own

testimony before the US Congress this week (i.e., before the quiet period begins next week) will be the most consequential of the

Fed speeches and appearances. But given Warsh's inclination to say little, the other speeches and appearances this week, by Chris

Waller, Michelle Bowman, John Williams (New York), Michael Barr, Lorie Logan (Dallas), and Philip Jefferson, will also be important.

Of these, it will be Christopher Waller's that we watch most closely. The reason is that, until May, Waller had been a "dove",

and the likeliest member of the Board to uphold Warsh's views should Warsh have been dovish. However, Waller has sounded

clearly more "hawkish" since May. First, in a speech called "Policy Risks Have Changed" in May, he first seemed to move away

from the need for policy rate cuts. Then, in his speech last week in Rome (July 6), Waller did not endorse a July rate hike, but he

did say that “the risks have completely flipped around now.