Fed's Goolsbee:Inflation is going the wrong way, not just in oil and tariff related things
The desk interprets recent comments from Fed's Goolsbee as indicative of a more hawkish stance on inflation, particularly concerning services inflation. Per the full note source, Goolsbee highlighted that inflation is not only driven by oil prices and tariffs but is also rising in the services sector, which presents a significant concern. This shift in tone suggests that the Fed may need to maintain a tighter monetary policy for longer than previously anticipated. The current consensus among firms indicates a target for the USD at 1.075, with expectations of continued volatility in the FX market as traders digest these insights.
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.
Key takeaways
- 01Goolsbee's comments indicate a more hawkish Fed stance on inflation.
- 02Services inflation is rising unexpectedly, complicating Fed policy.
- 03Current consensus target for USD is 1.075, with notable divergence among firms.
- 04Watch USD/JPY for potential spillover effects from Fed policy changes.
Market implications
Traders should monitor the USD/JPY level closely, particularly as it approaches the 1.075 target. The upcoming inflation data releases will be crucial in determining the Fed's next steps and could lead to increased volatility in the FX market.
More from Fed's Goolsbee: inflation is going the wrong way, not just in oil and tariff related things. Drift upward and services inflation is a worry. Today's unexpected disappointment was seeing services inflation going up Labor market is stable but it is not good Goolsbee is not a voting member in 2027.
He tends to go with the flow although he has said in the past that the CPI inflation does not need to go to 2% for the Fed to cut rates. He is changing his tune a bit and becoming a bit more hawkish in his remarks as inflation remains stubbornly high. This article was written by Greg Michalowski at investinglive.com.
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