“There’s the beginnings of a divide at the Fed, between inflation hawks and inflation doves,” Greg Valliere, chief global strategist of Horizon Investments, said in a video edition of his Capital Notes market commentary on Friday.
Valliere addressed two issues in the three-minute video: possible scenarios for the Fed’s next rate hike and the most likely nominees for the next U.S. president.
On the Fed’s next move, Valliere said the hawks feel “inflation is starting to percolate, and they don’t want to get behind the curve,” suggesting Vice Chairman Stanley Fischer is leading that charge. The doves, led by Charlie Evans in Chicago, feel there isn’t a need to raise rates again for several months, he said.
“I suspect that the hawks may get the upper hand and we may get a rate hike in mid-June — not at the April meeting; I think that’s too soon and there’s no press conference scheduled for Janet Yellen — but I think a June rate hike makes some sense as the inflation pool begins to gain more traction,” Valliere said. “For me, I’m not going to necessarily look at unemployment data, GDP data, retail sales. I think it’s the inflation data: CPI, PPI, the employment cost index.”
The other “big story” affecting markets, Valliere said, is the “bizarre, unprecedented political story that will continue to be front and center for the next several weeks.”