Meanwhile, the job markets in Europe and in the US remain strong in terms of hiring and pay growth.in December rose 4.6% year-over-year in December, albeit slower than 4.8% in November.
"We think current demand for labor looks too strong to ensure wage growth slows—which will be essential to bring inflation lower," said Haefele. He noted the three-month rolling average of wage rises was 6.1% last month. "Such strength is incompatible with meeting the Fed's 2% inflation goal, in our view," he said. "However, a degree of resilience in the labor market should be critical in preventing an economic slowdown turning into a recession, which would be negative for markets," the strategist said.
Bullard and Mester each acknowledged the overall slowing trend of inflation. But they said more interest rate increases to 5% or beyond are needed to drag prices toward the central bank's 2% target.in an interview with the Associated Press"While the strong start to the year is welcome and we believe more risk-tolerant investors can start to anticipate an inflection point in 2023, we advise against complacency," Haefele wrote.
US investors have been pricing in expectations for the central bank to downshift its next rate hike to 25 basis points at the upcoming February 1 policy meeting, down from 50 basis points at its December meeting. The benchmark rate stands at 4.25%-4.5%.