Deutsche Bank-Fed Watcher Cueing up cuts-110269746

ResearchDeutsche BankAmy Yang | (+1) 212 250 9959 | amy.yang@db.comSeptember 10, 2024IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. MCI (P) 041/10/2023. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS. Fed Watcher: Cueing up cutsDeutsche BankResearchAmy YangEconomist(+1) 212 250 9959 | amy.yang@db.comMatthew LuzzettiChief US Economist(+1) 212 250 6161 | matthew.luzzetti@db.comBrett RyanSenior Economist(+1) 212 250 6294 | brett.ryan@db.comJustin WeidnerEconomist(+1) 212 469 1679 | justin-s.weidner@db.com Avik ChattopadhyayResearch Associateavik-a.chattopadhyay@db.comSeptember 10, 2024Distributed on: 10/09/2024 18:24:05 GMT7T2se3r0Ot6kwoPaResearchDeutsche BankAmy Yang | (+1) 212 250 9959 | amy.yang@db.comSeptember 10, 2024DB Fed Watcher: Cueing up cuts2FedspeakWho**TakeawaysBias*Williams (09/06)▪ Can move to more neutral policy setting “over time”▪ PCE inflation ~@2.25% in ‘24, ~@2% in ’25▪ GDP ~@2%-2.5% for ’24; UR~@4.25% by end-2024; NAIRU ~@3.75%; inflation to cool more▪ More confident inflation on track▪ Dual risks now in equilibrium. Policy well positioned to achieve goals ▪ Now appropriate to lower rates▪ Still significant tailwinds on supply; strong increase in labor supply rather than elevated layoffs contributed to increase in unemployment▪ Not sure on 25bps v/s 50bps yet▪ Job numbers reinforce coolingBostic (09/04)▪ Dual risks now balanced▪ More confident inflation on track; not prepared to declare victory now▪ Labor market continues to weaken but it is not weak▪ Few employers contemplating layoffs amidst slow hiringBarr(09/10)▪ Large banks might see capital increase by about 9% in new proposal▪ Smaller banks could be exempted from parts of the revised proposalFedspeak, continued Who**TakeawaysBias*Waller (09/06)▪ Open-minded on cut size and pace▪ More risks to employment than inflation; UR up due to added supply▪ Current data ‘requires action’▪ “A series of cuts” will be appropriate and “carefully” conducted ▪ Labor market is softening but not deteriorating; is at an inflection point▪ Can respond “quickly” and “forcefully” if “subsequent data” show a “significant deterioration” in labor market. Will advocate ‘front-loading’ cuts if appropriate▪ 100k monthly job gain is normal in a longer-run view. August job report is “a bit below” the breakeven pace Goolsbee (09/06)▪ Overwhelming Fed consensus is for multiple rate cuts▪ Size and pace of cuts depend on data. Path of cuts (over next several months) is more important than size of first cut▪ August jobs report shows a continuation of existing trends▪ Need labor market, GDP to stabilize▪ Market pricing looks very similar to Fed projections▪ Concerned that tight policy is raising recession risk; soft-landing still hopeful▪ A little more room to tolerate an upside CPI surprise as longer inflation trend coming down* Bias of speech / research for monetary policy: Dovish Neutral