Fed's Williams: Trims his GDP forecast and boosts inflation view

What the desk is arguing

The desk views Williams' remarks as a clear indication of the Fed's cautious approach to navigating an uncertain economic environment. His adjustment of the GDP forecast to a range of 2% to 2.25% from a previous 2% to 2.5% highlights a more pessimistic outlook, while the inflation forecast for 2023 is now set at 3%, up from the prior range of 2.75% to 3%. This shift underscores the Fed's awareness of the persistent inflationary pressures stemming from supply chain disruptions and energy tariffs.

Moreover, Williams' acknowledgment that risks to both sides of the Fed's mandates have increased indicates a more complex economic landscape than previously anticipated. His comments reflect a growing concern about potential adverse scenarios, which could lead to a more cautious policy approach in the coming months.

Where it sits in our coverage

Our consensus target for the USD is 1.075, with a range of 1.04 to 1.12. Notable firms in this space include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)

This view aligns closely with jpmorgan's target, which is at the upper end of our consensus range, suggesting that the desk's outlook is somewhat optimistic compared to the more conservative stance of bofa.

How other firms see it

Firms like citi and jpmorgan are aligned with the desk's cautious approach, reflecting similar concerns about inflation and growth. In contrast, bofa takes a more bearish stance, suggesting a lower target that indicates a lack of confidence in the Fed's ability to manage inflation effectively.

Traders should keep an eye on the USD/JPY pair, as its trajectory could provide insights into how the market is reacting to the Fed's evolving stance on monetary policy and inflation expectations.

What the calendar says

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