Economics: Has peak hawkishness arrived?

Markets have discounted a swift Fed tightening cycle

Markets now expect a swift tightening of US monetary policy over the next two years. A strongly growing economy, upside inflation surprises, and the Fed’s hawkish pivot have all acted as tailwinds to this view. What might happen as these effects reverse?

Inflation looks close to a peak and could end the year near 2%

Headline inflation might’ve already peaked, and core could do the same in February or March. If goods prices begin to stabilise, particularly autos, core PCE inflation could end the year close to 2% – even if housing costs rise at their fastest rate since 1990.

We could be close to ‘peak hawkishness’ on US interest rates

An earlier liftoff means the Fed funds rate will probably rise by more than we previously expected this year. But we continue to think that markets have discounted an overly aggressive tightening cycle. We expect just two hikes during this year.