Internal Fed discussions may be more hawkish than the decision itself; US Treasury bonds face key resistance at 4.50%
- The internal discussions at the Federal Reserve's first meeting chaired by Waller are likely to be much more hawkish than the final FOMC statement, with core PCE inflation facing the risk of re-accelerating to 3.5% year-over-year. This view is supported by a robust job market, ongoing AI investment demand, and rising commodity prices.
- Against this backdrop, the statement's wording is expected to remove any accommodative signals hinting at future rate cuts. The median in the dot plot is likely to shift from one rate cut this year to holding steady or even a rate hike, while the long-term rate could rise to 3.25%. The Summary of Economic Projections (SEP) will likely revise the unemployment rate lower and significantly raise the core PCE forecast to at least 2.9%.
- On a tactical level, the 10-year Treasury yield is finding support near 4.40%, with 4.50% serving as key resistance in the near term. If this level is tested, the market could move into an even higher trading range.
- There is a clear divergence between paper contracts and the physical market in crude oil: futures curves suggest a gradual price decline over the coming years, but commercial crude and refined product inventories remain historically low relative to demand. This leaves the entire supply chain with systematically thin inventories, leading the physical market to continue pricing in scarcity.
- Even if the Strait of Hormuz is officially reopened, the process of clearing more than 100 ships stranded for over 100 days will be a slow logistical endeavor, making it difficult for traffic to quickly return to pre-conflict levels. If there are renewed ceasefire disruptions, WTI could trade in the $90 to $120+ per barrel range.
- The main focus for markets on Wednesday is the FOMC rate decision and Waller’s inaugural press conference. The consensus expects rates to remain unchanged, but the Summary of Economic Projections will reflect the impact of supply shocks on the inflation trajectory. Additionally, there is attention on whether Waller will indicate reforms aimed at reducing forward guidance and the frequency of communications.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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