Fed credibility, dissent, and labor market outlook (with Lizzy Burden)

Powell's comments on Fed credibility are important but won't move markets near-term. Investors focus on how new Chair Warsch will manage dissent within the Fed and balance high inflation vs slowing economy. A surprise drop in unemployment to 4.1% could bring forward rate hike expectations to Q4 this year.

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Fed credibility, dissent, and labor market outlook (with Lizzy Burden)

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Cranfield says a surprise drop in unemployment could shift the yield curve up and bring forward rate hike expectations, implying upward pressure on yields if labor data surprises.

Powell warned Fed credibility could be damaged if politicians remove officials over policy disputes. Does the market care?

Lizzy Burden
Mark Cranfield

We're far from a leadership crisis. Investors care about how Warsch manages short-term expectations: inflation is high and may stay high, but the economy may slow. He also faces unusual dissent within the Fed.

Powell's comments on independence/credibility are things he's said before; they won't move markets near-term.
What would it take for traders to price in more aggressive rate hikes?

Lizzy Burden
Mark Cranfield

A surprise drop in unemployment to 4.1% would shift the yield curve up and bring forward rate hike expectations, possibly to Q4 this year. But it would need a big move to get traders excited.

Currently traders expect no change this year, with a potential hike in Q1 next year.

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