Fed Sentiment at Peak Hawkish

Apollo Chief Economist

Running the Fed minutes through a natural language processing model shows that Fed sentiment is currently at peak hawkish at levels last seen in 2019, 2006, and 2000, see the first chart below. With inflation trending lower and growth slowing, we should expect the Fed to turn more dovish after their meeting on Wednesday. And a Fed pause is good for credit and equities because then markets know that we are at the end of the rate hiking cycle, see the second chart.

Source: Bloomberg (ticker BIFIFEDM), Apollo Chief Economist. Note: Methodology: Bloomberg’s Federal Reserve natural language processing model calculates a score for the opening statement of the FOMC meeting starting in April 2011. The model uses a neural network to predict the dovishness vs. hawkishness of a sentence. Weights are applied for more or less participant consensus (e.g. “some participants” vs “all participants”). The final score is a weighted ratio of dovish vs. hawkish sentences. Positive scores are hawkish and negative scores are dovish.
Source: Bloomberg, Apollo Chief Economist

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