Citi expects the Fed to pivot in 2023 if the inflation outcomes being priced-in by markets prove correct.
Several Federal Reserve presidents Loretta Mester, Mary Daly and Charles Evans have been pushing back the central bank’s pivot, the idea that indicates the end of tightening cycle and the start of rate cuts in early 2023, Citi stated that it expects the U.S. central bank needs to see sequentially lower prints in the consumer price index (CPI). But these prints are backward looking as they lag economic activities.
In this regard, if market pricing of inflation is proved correct, then a 2023 pivot is likely, the bank said.
Furthermore, Fed’s historic decisions indicate that Fed cuts which are priced, are Fed cuts which are delivered, even if CPI is above target.
The pivot will create a different dynamic for equities as at the beginning of this year, the market was seeing lower growth and tight policy, by now it would be lower growth and easier policy.
