HALISTER1: Fed Likely to Win Most of Its Arguments With Mkts: BofAML

Fed Likely to Win Most of Its Arguments With Mkts: BofAML

(Bloomberg) -- Mkts and Fed “do not communicate well,” Fed “is likely to win” most of its disagreements with mkts on economy/central bank’s reaction function, BofAML economist Ethan Harris writes in note.
  • BofAML sides with Fed’s view that U.S. economy is resilient, able to weather surge in USD and correction in risk assets
  • “Biggest mispricing” in mkts is view that Fed will not be able to reach 2% inflation target
    • With unemployment approaching or surpassing NAIRU, “inflation has arrived on schedule”
  • “Both sides bear some of the blame for the frequent disconnects” on issue of how much “data dependence” is influenced by global factors vs. U.S. labor mkt/inflation
  • BofAML expects Fed to hike twice this yr, three times next yr; is concerned that mkts will be looking for specific guidance on timing of next rate increase
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Ethan Harris (Bank of America Corp)

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