Fed's Goolsbee:Inflation is going the wrong way, not just in oil and tariff related things

What the desk is arguing

The desk frames Goolsbee's remarks as a signal that inflationary pressures are broadening, particularly in the services sector, which has seen unexpected increases. This aligns with a growing concern that the Fed may not be able to pivot to a more accommodative stance as quickly as markets had hoped.

Supporting this view, Goolsbee noted that while the labor market remains stable, the uptick in services inflation is a troubling sign that could complicate the Fed's decision-making process. This is particularly relevant given that Goolsbee has previously suggested that CPI inflation does not need to reach the 2% target for the Fed to consider rate cuts, indicating a potential shift in his outlook.

Where it sits in our coverage

Our consensus target for the USD is currently set at 1.075, with a range of 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This view aligns with jpmorgan, which sees a stronger dollar in the near term, while bofa holds a more bearish outlook, suggesting divergence in expectations regarding Fed policy and inflation dynamics.

How other firms see it

Firms like jpmorgan and citi are aligned with the desk's interpretation, emphasizing a hawkish Fed stance and potential for further dollar strength. In contrast, bofa and goldman express concerns about a more dovish pivot, suggesting that inflation may not be as persistent as feared.

Traders should keep an eye on the USD/JPY pair, as its movements could reflect broader market sentiments regarding Fed policy and inflation expectations. Additionally, the trajectory of services inflation will be critical in shaping future Fed communications and market reactions.