Morgan Stanley expects a hawkish leaning Powell this week | investingLive

• Inflation: July CPI in line, but core rose to 3.1% y/y, driven by sticky services. Goods inflation muted, tariff effects slower than expected.

• Outlook: PCE inflation seen peaking ~4.5% annualized; year-end ~3% headline, 3.2% core. Risks of inflation staying above target into 2026.

• Fed vs. markets: Markets price near-certain September cut (~93%). Fed speakers tilted slightly dovish but less than markets. Some still stress inflation risks (e.g., Goolsbee).

• Jackson Hole: Powell likely to lean hawkish to preserve flexibility—too early to judge tariffs, inflation still more concerning than jobs.

• Trade/tariffs: Effective tariff rate now 16%, receipts up, shipping volumes slowing.

• US outlook: Baseline = slow growth (GDP ~1% in 2025–26), gradual rise in unemployment, inflation above target, Fed on hold until 2026.

• Scenarios: Baseline (40%), mild recession (40%), demand upside (10%), supply upside (10%).

I agree with the bank. I think if it wasn’t for the NFP revisions, the market’s reaction to last week’s Core CPI and PPI data would have been completely different.

Markets also seem to be confident in a dovish outcome from Powell, with equities close to all-time-highs, the USD trading close to yearly lows, and money markets fully pricing in two cuts by the end of the year and a >80% chance for one in September.

Arguably the best opportunity for risk event traders would be a Powell that sticks to the FOMC script, and says they prefer to wait for the next batch of data before they make up their mind for September.