PRIMER: Fed Chair Powell to speak at 14:10BST/09:10EDT - remarks will overlap with ECB President Lagarde's post-meeting press conference

TIMING OF SPEECH: First, it is important to note that Powell’s remarks will overlap with the ECB’s post-meeting press conference with President Lagarde, suggesting it could be a very busy window. (Full Newsquawk ECB recap here)

COPY & PASTE? Regarding the Fed chair, while it is tempting to think that Fed Chair Powell may unveil new insight into how the Fed will set policy in the coming months, we must recall that the Fed is in data-dependent mode, and officials may not want to pre-empt incoming data (the US CPI report is out next Tuesday). Accordingly, Powell is likely to reiterate his line from the Jackson Hole Economic Symposium, where he said the Fed was moving purposefully to a level sufficiently restrictive, where rates would likely be held for some time, arguing that reducing inflation will likely require a sustained period of below-trend growth, and keeping rates at the long-run neutral estimate of 2.25-2.50% was not a place to stop or pause. At some point, as policy stance tightens further, it will be appropriate to slow the pace of rate hikes, Powell added. The Fed chair emphasised that the increment of the September rate hike would be dependent on the "totality" of data since July meeting, and while July's lower inflation readings were welcome, they were still short of what is needed before Fed is confident inflation was moving down. 

SEPTEMBER HIKE SIZE/TERMINAL: Currently, money markets are shooting for a 75bps rate hike at the September 21st FOMC from the current 2.25-2.50%, an expectation reinforced by a WSJ article making the case for such an increment (the article was authored by a reporter who is thought to have access to high level officials at the Fed). Meanwhile, since Jackson Hole, a strong jobs report and solid ISM survey data has seen expectations of the eventual terminal rate moved up to the 3.75-4.00% band (markets see this level of rates in Q1), in line with what the Fed’s June SEP forecast. Analysts have been suggesting that this is arguably more important than the increment of the rate hike an an individual meeting (a point impressed by Fed’s 2022 voter Mester this week), since it informs us about the cumulative volume of hikes across the cycle, and where turning points are likely to be (if rates peaked in Q1, then markets might expect rate cuts in Q3/Q4, if history is any guide).

08 Sep 2022 - 13:40- Fixed IncomeData- Source: Newsquawk