Brown Brothers Harriman’s (BBH) Elias Haddad reports that the US labor market is stabilizing and inflation is gaining traction, as evidenced by recent ISM surveys and the Fed Beige Book [1]. The Beige Book noted that employment showed little to no change across eleven Districts, with one District experiencing modest growth, and prices increased at a moderate to strong pace overall, with most Districts reporting higher inflation than the previous report [1]. The ISM May surveys corroborated these findings, with the Prices Paid indices indicating inflation risks remain skewed to the upside, while the Employment gauge was stable under the 50.0 boom/bust threshold [1].
A 25 basis point Fed funds rate hike by year-end to a target range of 3.75-4.00% is now heavily priced in, with a 75% probability, and is seen as supportive for the US Dollar [1]. Dallas Fed president Lorie Logan, an FOMC voter, stated, “I'm increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability,” highlighting the hawkish stance among some Fed officials [1]. Logan, along with Beth Hammack and Neel Kashkari, did not support the inclusion of an easing bias in the April 29 post-meeting statement [1].
Upcoming Revelio Labs employment data will be closely watched for further confirmation of labor market trends [1]. Several Fed speakers are scheduled for today, including Richmond Fed President Tom Barkin (2027 voter), Fed Vice Chair for Supervision Michelle Bowman, San Francisco Fed President Mary Daly (2027 voter), and Kansas City Fed President Jeff Schmid (non-voter), which may provide additional insights into policy direction [1].
CONCLUSION
The US Dollar is receiving strong support from hawkish Fed rate expectations and signs of stabilizing employment and rising inflation. With a 25bps rate hike by year-end now 75% priced in, market sentiment is firmly positive for the USD. Investors will be watching upcoming employment data and Fed commentary for further confirmation of this trend.