Fed's Hammack favors gradual rate-hike path to lower inflation
Federal Reserve Governor Michael Hammack has expressed support for a gradual approach to rate hikes as a mechanism to combat inflation. This indicates the Fed's ongoing commitment to tightening monetary policy in a calculated manner, potentially impacting dollar strength. With inflation still stubbornly high, the timing of Hammack's stance suggests a sustained focus on mitigating inflationary pressures without abrupt shifts in monetary policy, which could influence FX markets in the near term.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). Reuters' view aligns more closely with the upper third — JPMorgan and ING share that framing.
How firms align
JPMorgan is aligned with Hammack's cautious approach, targeting 1.10 for EUR/USD, suggesting confidence in gradual Fed actions. In contrast, BofA takes a more bearish stance, positioning its target at 1.04, reflecting skepticism about the gradual rate hike's effectiveness.
What the data shows
The recent revisions from firms indicate that while there's a general consensus for cautious optimism, the divergence between optimistic and pessimistic views highlights uncertainty. For further insights, see our discussion at /research/fx-guidance.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Fed's Hammack advocates for gradual rate hikes to curb inflation, signaling USD strength ahead.
- 02FX traders should watch for dollar resilience as the Fed balances inflation control.
- 03A key level to watch is 1.075 for EUR/USD as markets react to Fed communications.
Market implications
Key events to monitor include upcoming Federal Reserve meetings where potential rate adjustments may be discussed. The consensus level of 1.075 for EUR/USD could serve as a critical support/resistance point in reaction to Fed comments.
Risks to this view
Should inflation data come in unexpectedly high, increasing market expectations for more aggressive rate hikes, it may lead to a stronger dollar and a shift in sentiment against Hammack's gradual approach.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
How we cover this story