The focus will be on Washington this week as Fed Chair Powell presents his semi-annual monetary policy testimony before the Senate Banking Committee (Tuesday) and House Financial Services Committee (Wednesday). We believe Powell will largely reiterate the message from the January FOMC meeting that with a strong economy, solid labor market, and bumpy progress on inflation, the Fed is not in a hurry to cut rates. The preliminary reading on University of Michigan inflation expectations also indicates the Fed cannot take anchored expectations for granted. Markets will also be looking forward to Trump’s latest tariff talk of reciprocative tariffs and any firm decisions by Monday/Tuesday on the same. On a rough estimate basis, US can impose a uniform 10% tariff on all trade partners via the reciprocative route. In US Macro data, we expect headline & core CPI to come at 0.33% MoM & 0.31% MoM respectively. Super core services can come at 0.4% against Dec's 0.21% due to rise in airline fares & meaningful strength in hospital & related services. Based on our CPI and PPI forecasts, we expect core PCE inflation rebounded to 0.280% m-o-m in January from 0.156% in December. However, because of a negative base effect, we expect year-on-year core PCE inflation to have moderated to 2.572% in January from 2.794% in December. With 5/6 readings of core CPI at 0.3% MoM, the disinflation narrative in US has effectively stalled. In retail sales data, headline retail sales likely fell 0.2% m-o-m in January following 0.4% m-o-m rise in December, led by a decline in auto sales. Excluding auto sales, retail sales likely grew 0.5% m-o-m. Fed speak recently has truned uber hawkish. Even doves like Goolsbee has noted he is open to being cautious about cuts and now has a shallower rate cut path. Vice Chair Jefferson recently said the Fed could reduce rates "over the medium term", taking emphasis off near-term moves. This week also has an auction supply of 125 BN USD in USTs as well 35 BN USD supply of IG bonds in US. In rest of the world data, UK GDP for Q4CY24 is likely to show a reading of -.1% confirming that UK economy is undergoing high service inflation as well as weak growth issues.
