Bank Which First Correctly Called 75bps Hike Now Sees 50bps In July Due To Economic Slowdown

One week ago, well before the WSJ’s leaked flipflop on what the Fed will do, Barclays rates strategists Jonathan Millar and  Ajay Rajadhyaksha were the first to correctly call a 75bps rate hike when 50bps was still the broad consensus. Well, moments after Powell proved them right, the Barclays duo came out with another report which maybe while not as remarkable is still quite noteworthy in its break from consensus. Indeed, with most banks now expecting the Fed’s autopilot to kick in and for the Fed to keep hiking 75bps (even though Powell said not to expect 75bps moves to be common) with Goldman now calling for another 75bps in July, Barclays is once again taking the other side, and writes that “the Fed will go back to a 50bp hike in July, amid signs that consumption and the US housing market are slowing.”

Here are some more excerpts from the note available to professional subs in the usual place:

Last Friday, right after the CPI report, we changed our call for the Fed’s June meeting, from a 50bp to a 75bp hike. The meeting was just days away and markets were priced for 50bp. But we felt the Fed needed to show urgency after the magnitude of the May inflation surprise and would make a statement move. One hurdle in moving so sharply, of course, was that markets would promptly price in 75bp in future meetings, pushing the Fed into a corner. But we believed that was not enough to stop the central bank from moving by 75bp in June

Things played out as we expected. An hour ago, the Fed raised the funds rate by 75bp for the first time in decades, and the press conference is currently in progress. But sure enough, markets now expect another 75bp in July, with a very high probability. But once again, we have a non- consensus call. We now expect the Fed to shift back to a 50bp hike at the July 27 meeting, bucking current market expectations, for a few reasons. – READ MORE