We see persistently too-strong inflation - Citi

Citi economist Veronica Clark on the U.S. economy and Fed's next steps: "A few weeks of relative stability in the financial system had markets refocusing attention on economic data this week, with rates markets particularly sensitive to downside surprises. Early in the week, weaker than expected readings for ISMs, JOLTS job openings, and ADP employment sent 2-year US Treasury yields to a new recent low of around 3.65% before solid 236k March payrolls led 2y yields to end the week back close to 4%."

"We see a disconnect between markets presuming much easier Fed policy on “softer” data and how the Fed will actually see the data. Not only should high inflation and a still-strong labor market keep cuts unlikely, but we see persistently too-strong inflation, including a 0.5%MoM increase in core CPI next week, as leading to further hikes. We maintain our expectation for three 25bp rate hikes at the coming meetings with a policy rate reaching 5.50-5.75."

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