The implied odds of a 100 basis point hike at the July 27 meeting took a big hit after comments from Fed Governor Christopher Waller.
He is a hawk and one of the more-likely officials to shift but said that he still supports 75 basis points but with a big caveat.
"My base case for July depends on incoming data," he said. "We have important data releases on retail sales and housing coming in before the July meeting. If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down."
The implied odds of a 100 bps hike now sit at 49.6% compared to 80% early today.
The retail sales report is due on Friday while we get three US housing reports early next week. However the Fed blackout period starts on Saturday so communication will go cold. The only scheduled Fed speaker tomorrow is Bostic but watch out for unscheduled media comments.
What comes next will depend on that data and other data scheduled right up until the July 27 FOMC. We will be watching out for leaks to the press.
For now, the comments from Waller have boosted risk assets and reversed a portion of the rally in the dollar.
