Situation Room: The Fed outlook is still hawkish

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Situation Room: The Fed outlook is still hawkish

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Situation Room

The Fed outlook is still hawkish

Credit Analysis

The Fed outlook is still hawkish 14 July 2026

The June CPI came in much cooler than expected. Core CPI as well as core services CPI Credit Strategy

came in close to flat on a MoM basis. In response, market pricing subtracted -9bps from United States

Fed hikes over the next 12M. Cross Product

However, that just reversed a similar increase since July 9 caused by the jump in oil Yuri Seliger Credit Strategist

prices (Exhibit 2). Moreover, inflation remains elevated. Our economists are tracking BofAS

+3.3% YoY for core PCE, which is near the highest levels since 2023 (Exhibit 1). +1yuri.seliger@bofa.com646 855 7209

As a result, markets continue to price Fed hikes over the next 12M (+39bps), alongside SohyunCredit StrategistMarie Lee

our economists’ call (+75bps) (see US Watch: June CPI inflation: An indisputably soft BofAS

+1 646 855 7217

report, Exhibit 3). sohyun.lee@bofa.com

A strong economy

As we highlighted on Monday (see Situation Room: Consumer vs. Iran), the combination In this report

of higher oil prices on Iran and a very resilient US consumer should also keep the Fed

TIC update for Mayoutlook relatively hawkish. That, in turn, means yields should remain elevated in 2H-

2026, supporting investor demand. The support for demand is particularly important as Daily supply snapshot

supply is finally beginning to weigh on IG spreads (see IG Credit Strategist: Supply

matters). Daily dealer inventories update

TIC update for May Daily HG fund flows

According to TIC (Treasury International Capital) data released today, foreign investors Daily foreign demand tracker

net bought +$55.8bn of US corporate bonds (excluding ABS) in May.