Morgan Stanley expects a hawkish leaning Powell this week

• Inflation: July CPI in line, however core rose to three.1% y/y, pushed by sticky providers. Items inflation muted, tariff results slower than anticipated.

• Outlook: PCE inflation seen peaking ~four.5% annualized; year-end ~three% headline, three.2% core. Dangers of inflation staying above goal into 2026.

• Fed vs. markets: Markets value near-certain September minimize (~93%). Fed audio system tilted barely dovish however lower than markets. Some nonetheless stress inflation dangers (e.g., Goolsbee).

• Jackson Gap: Powell prone to lean hawkish to protect flexibility—too early to evaluate tariffs, inflation nonetheless extra regarding than jobs.

• Commerce/tariffs: Efficient tariff fee now 16%, receipts up, transport volumes slowing.

• US outlook: Baseline = sluggish progress (GDP ~1% in 2025–26), gradual rise in unemployment, inflation above goal, Ate up maintain till 2026.

• Situations: Baseline (40%), gentle recession (40%), demand upside (10%), provide upside (10%).

I agree with the financial institution. I feel if it wasn’t for the NFP revisions, the market’s response to final week’s Core CPI and PPI information would have been fully completely different.

Markets additionally appear to be assured in a dovish consequence from Powell, with equities near all-time-highs, the USD buying and selling near yearly lows, and cash markets totally pricing in two cuts by the top of the 12 months and a >80% probability for one in September.

Arguably the very best alternative for danger occasion merchants can be a Powell that sticks to the FOMC script, and says they like to attend for the following batch of knowledge earlier than they make up their thoughts for September.

This text was written by Arno V Venter at investinglive.com.