Evercore ISI reacted to today's remarks by Federal Reserve Governor Christopher Waller, suggesting a possible shift in monetary policy later this year.
Waller's statements, which were seen as more hawkish compared to Vice-Chair Richard Clarida's previous day remarks, indicated a gradual progress towards the 2% inflation goal.
Waller did not express immediate encouragement but noted that the real economic conditions aligning with this target appear to be resuming.
Waller's analysis of the April inflation report showed it did not signal a reacceleration of inflation, hinting that another rate hike by the Fed might be unnecessary.
He stressed the need for "several more months of good inflation data" before considering a rate cut, implying that a clear downshift in inflation over the coming months could prompt action in September.
Despite Waller's cautious approach, emphasizing that the factors influencing first-quarter inflation have not completely vanished, Evercore ISI interprets his comments as aligning with the broader consensus among Fed officials.
They suggest that there is an unspoken agreement to assess economic data over the next three to four months, which will determine the central bank's next move.
Evercore ISI's analysis points to two possible outcomes based on the upcoming economic data: a dovish scenario where first-quarter inflation is deemed temporary and the economy shows moderation, potentially leading to a rate cut in September, or a hawkish scenario where persistent macroeconomic strength and inflation could result in an extended hold on rates.
The firm concludes that the most probable scenario involves two rate cuts starting in September, with the next likely scenario being no cuts until after March.