Analyst Brandon Brown says after a stronger-than-expected nonfarm payrolls print
markets currently price roughly 15bp of tightening for the September Fed
meeting. Citing Fed governor Waller's comment that the next inflation print will
determine his vote, Brown says a ~50/50 market probability for a September hike
before those data is reasonable. He sees renewed dissent on the Fed's policy
panel likely, especially if inflation proves mild and the Fed remains on hold.
Based on PPI/CPI pass-through to core PCE, the threshold to support hikes versus
holding is around 0.25% MoM core PCE. Long-end market pricing implies cumulative
tightening slightly above 60bp by mid-2027. Even with strong data, Brown judges
more than three rate hikes in the near term unlikely.
