I think Powell is going to be hawkish today. What I'm worried about is that everyone thinks Powell is going to be hawkish and that it doesn't even matter.
Sure, there might be some kicking and screaming on the headlines but the trade would be to buy the dip (Friday maybe?), because anyone with money on the line saw it coming.
Even if the Fed comes out and pushes back and says 5.25% again, and leans into the idea of 'no cuts in 2023 and probably not in 2024', does it really matter? First, they have zero forecasting credibility, even out to the May meeting, which is presumably when they get to 5-5.25%. Second, 5.25% is just 500 basis points of ammunition for cutting later.
The thinking is:
1) The economy holds up at 5% rates, the data stays strong, hooray for a good economy
2) The economy stumbles, the data turns lower, the Fed cuts.
Either way markets can rally.
A tail risk is a 50 bps hike but I don't think they can do that credibly either so it could also lead to dip buying because they would be seen as near the end.
There's an argument for sticky inflation in a bad economy and I can see it, but the market just doesn't want to hear it right now because that hasn't been the trend for 50 years. Besides, it will be summer before you have enough data to credibly make that case. On top of that, AI may be so disruptive that it causes millions of job losses and ensures a loose jobs market for the rest of the decade.
