Markets Too Upbeat on 2023 Rate Cuts While Inflation Stays Elevated: Fed Intent on Taming Prices
• Markets seem too optimistic about potential Fed rate cuts in 2023 as critical inflation data does not yet show meaningful cooling.
• The Fed remains firmly committed to fighting any renewed rise in inflation, a scenario underappreciated by markets.
• Areas of inflation closely watched by the Fed, like core services and wages, have shown limited signs of decline so far.
• Continued economic resilience may inhibit disinflation or even spark more inflation pressure.
• If markets acknowledge the Fed's stance against inflation, it could spark a correction in risk assets and support bond yields.