As market participants digest last week’s FOMC meeting, as well as the Iran/US MOU, focus will be on New York Fed President Williams, as well as Chicago’s Goolsbee on Thursday, both of whom will appear after seeing the latest reading on the core PCE deflator, the Fed’s preferred (for now) inflation metric earlier that morning. We expect core PCE to come hot at .38% MoM and 3.5% YoY. While market is evenly split between whether Warsh was dovish or hawkish, we believe there are enough and more reasons for Fed to be on hold in REMCY26. Amongst the 5 task forces he has created, one is on inflation frameworks. Without the task force final result which is unlikely before year end, we dont expect Warsh to hike. Also June onwards CPI readings will start cooling down due to falling energy prices. Core good prices are well behaved and tariff inflation is almost in it's last course. Once the world cup gets over in August, even service inflation might start stabilising. From Sep onwards we expect weakness in NFPs. Hence we see Fed on hold for REMCY26. Amongst our rate views, if the 1yr-1yr US SOFR inches up to 4.10-4.15 levels from CMP of 4.03 levels, we like to receive half risk at these levels & another half at 4.25. Stop to this view is 4.35 and TP is 3.80. In Fx, we remain bullish on DXY and have a short-term target of 102 from the current 100.85 levels. There is no dated UST supply this week. In RoW events, we have German IFO survey, European PMIs & Tokyo CPI.
