More from Fed's Collins:Strong productivity gains should help lessen inflationary pressure
At a Glance
The desk interprets the recent comments from Fed's Collins as a signal of improving productivity and a less aggressive inflation outlook, which may support a soft-landing scenario for the economy. Per the full note source, Collins emphasized that productivity gains are not solely AI-driven, indicating a broader improvement in supply-side conditions. This perspective aligns with our view that inflationary pressures may ease, allowing for sustained economic growth without the need for drastic policy measures. Current consensus targets from major firms suggest a range that reflects this cautious optimism, with upcoming economic indicators likely to influence market sentiment.
Full Analysis
What the desk is arguing
The desk sees Collins' remarks as a pivotal indication that productivity improvements can mitigate inflationary pressures, supporting a more dovish stance from the Fed. Per the full note source, she highlighted that strong productivity gains are not limited to AI advancements, suggesting a more robust supply-side recovery.
This view is bolstered by the current low employment rate and ongoing supply-side challenges, which Collins believes will help absorb growth without exacerbating inflation. The implication is that the Fed may not need to adopt an overly aggressive policy response, which could stabilize market expectations around future rate hikes.
Where it sits in our coverage
Our consensus target for the EUR/USD pair is 1.075, with a range from 1.04 to 1.12. Notable firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective aligns with jpmorgan, which supports a more optimistic outlook, while bofa takes a more cautious stance at the lower end of the range. The desk's call is positioned towards the upper bound of this spread, reflecting confidence in the soft-landing narrative.
How other firms see it
Firms like jpmorgan and citi share a similar outlook, emphasizing the potential for productivity gains to alleviate inflation concerns. Conversely, bofa and deutsche express skepticism, focusing on persistent demand-side pressures that could undermine this narrative.
Watch the EUR/USD trajectory as it may reflect the Fed's evolving stance on interest rates, particularly in light of Collins' comments. Additionally, the upcoming US employment data will be crucial in assessing the labor market's impact on inflation dynamics.
What the calendar says
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From the original
Has been expecting to see continued productivity gains, it's not just AI-driven. Employment rate remains relatively low. There is been a long list of recent supply shocks, is very focused on supply-side issues. Fed inflation targeting factors driving prices. Strong productivity g
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Fed's Goolsbee: Impact of rising productivity on inflation remains active topic of debate
The desk interprets Chicago Fed President Goolsbee's remarks on productivity and inflation as a signal of ongoing uncertainty in the economic landscape. Per the full note [source], Goolsbee highlighted that rising productivity could lead to either inflationary pressures or disinflationary effects, depending on consumer behavior and expectations. This nuanced view reflects the broader debate among economists about the implications of productivity gains on monetary policy. With the Fed's next moves under scrutiny, the market is poised for volatility as traders assess these dynamics.