Morning Notes — What to Expect

The focus was on MSFT/AAPL earnings and the Fed coming into the week.  The two large Tech names reported solid Q4 results/better guidance, while the Fed’s neutral statement and hawkish press conference resulted in net-hawkish takeaways. The Fed seemed to answer open questions on the expected pace of rate hikes, but gave less information on the timing and pace of QT.  This is because the Fed will take an inflation data-driven approach when comes to QT.  The Fed’s hawkish pivot makes sense following an +8.2% CPI print in Q4’21. Most of the CPI overshoot was based on goods price inflation due in large part to supply bottleneck pressures exacerbated by Delta variant worker shortages. Looking at YoY comps and factoring in some easing of supply chain pressures, will likely cause inflation to dissipate into year-end to something in the 2.4%-2.8% range.  Fed fund futures are currently priced for 5 rate hikes this year.  But the YoY inflation comps get very difficult beginning in April, when 5 hikes might look like an overshoot.  Today’s December inflation data was in-line/cooler than expected and we expect the pace of inflation dissipation to accelerate in Q2.