This week features a flood of Fedspeak that will provide insights on where officials line up in what looks like a historically-divided Committee on the policy path ahead, even if there was broad agreement for last week’s 25bp reduction. The combination of the lower path of the federal funds rate and upwardly revised inflation outlook suggests that policymakers are becoming more tolerant of lingering above-target inflation. Since we expect employment to worse further due to weaker demand as corporates start dehoarding labor due to lower consumption, we expect 25 bps rate cut each in the next 4 Fed meetings. The terminal rate could be now even lower than 3% if a new dovish Fed Chair cuts further in FY27. We believe that Waller’s likelihood of replacing Powell as chair has declined post last week FOMC where he voted for 25 bps cut. This raises the possibility of an even more dovish replacement and therefore the likelihood of increasingly aggressive easing in the post-Powell Fed. Trump administration has dragged services too in the trade war now. After all the initial confusion, we understand now that the recent hike in H-1B visa fees to $100K (from ~$1.5-4K) is applicable for new visas and does not impact existing holders/visa renewals. We believe such a measure would represent not merely a cost increase but a fundamental paradigm shift in U.S. high-skilled immigration, with profound and disruptive effects on Indian nationals, Indian information technology (IT) services firms, and the broader U.S. technology ecosystem. Rather than protecting American jobs, it would likely exacerbate the domestic tech talent shortage, drive significant wage inflation, and incentivize U.S. companies to offshore entire R&D and innovation functions to access global talent. In US macro data, we have S&P PMIs, existing & new home sales, 3rd estimate of Q2 GDP and core PCE. Core PCE is likely to come subdued at .22% MoM due to core goods PCE turning -ve. We will also have revisions this week in PCE inflation data for last 5 years. In auction supply this week, 2yr UST auction of 69 BN USD on Tuesday, 5yr UST auction of 70 BN USD on Wednesday & 7yr UST auction of 44 BN USD on Thursday. In RoW events, we have SNB & Riksbank policy meetings this week. Both are expected to remain on hold. Tokyo CPI due on Friday is expected to be strong again due to solid wage growth. the core-core CPI — excluding fresh food and energy — will likely stay at a lofty 3.0%, with higher labor costs feeding into prices of labor-intensive services such as dining and accommodation. Our base case now is a 25-bps hike in Oct meeting.
