The market is now pricing in a 91% chance of a 75 basis points Fed hike on September 21. The final push came today after Fed Governor Waller said the meeting was fairly straightforward and that he expected another big hike.
Economists will continue to coalesce around 75 basis points now and that continued with Bank of America economists shifting their forecast to 75 bps from 50. They cited comments from Powell yesterday where he made no effort to push back on market expectations for 75 bps.
Perhaps more importantly, Bank of America took its terminal top to 4.00-4.25% from 3.75-4.00%.
"We think that more cumulative tightening is needed to restore balance in labor markets," they wrote. "We also believe the Fed wants to get to its restrictive policy stance sooner than later."
In a separate note, Bank of America Global Research also discusses its expectations for next week's (Tues) US CPI print for the month of August.
"In the August CPI report, we look for headline CPI to decline by 0.1% mom, its first decline since May 2020, and for core CPI to advance by 0.3% mom. This would leave headline and core CPI up 8.2% and 6.0% yoy, respectively," BofA notes.
"We look for the retracement in energy prices to continue in August as we forecast a 5.2% mom decline following the 4.6% drop in July. Meanwhile, food price appreciation should only ease modestly to 0.9% mom from 1.1% previously. Elevated wages should continue to put upward pressure on food away from home inflation , and though commodity prices have declined recently, this will take time to pass through to consumer prices," BofA adds.
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