More from Fed's Collins:Strong productivity gains should help lessen inflationary pressure
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.
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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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 gains should help lessen inflationary pressures Looks forward to working with new Fed chair Kevin Warsh Very valuable to have different perspectives on the Fed After being more, hawkish in her earlier comments, these comments leaned modestly dovish and supportive of the soft-landing narrative. Collins emphasized that productivity gains are continuing and are not solely tied to AI, which suggests she sees the economy’s supply side improving in a way that can help absorb growth without fueling inflation.
Her focus on the long list of recent supply shocks and supply-side factors driving prices also implies she views inflation pressures as not purely demand-driven, which tends to argue against an overly aggressive policy response. At the same time, she acknowledged the labor market remains strong, but without framing it as a major inflation concern. Overall, the comments suggest growing confidence that stronger productivity and improving supply conditions can help ease inflation pressures over time while supporting continued economic growth.
She adds: IN markets, anything that expands rapidly get attention. Top of mind to understand what's happening with private credit. Many key economic indicators are very volatile right now This article was written by Greg Michalowski at investinglive.com.
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