BNY MellonMarkets have finally started to listen to the Federal Reserve, it would seem. The minutes of the July 26-27 FOMC meeting, released last Wednesday, were initially taken as dovish. But by the end of the week, enough Fed speakers surfaced to push back on that interpretation, leading to some re-pricing of the forward curve towards a more hawkish set of expectations.This sets the stage for Fed Chair Powell’s appearance at the Jackson Hole Symposium at the end of this week. We will provide a detailed preview of Powell’s speech in our weekly Short Thoughts on Tuesday, but suffice it to say here, we are wondering if his message will double down on the hawkish rhetoric we heard from other Fed officials last week.We remain somewhat perplexed by the initial dovish reaction to the minutes, an impression which we, quite frankly, didn’t come away with. True, there were some comments about the possibility that the Fed might be able to slow the pace of rate hikes at some point in the future, as well as some open musing on whether or not policy tightening could slow the economy. But overall, the concern on inflation was notable, as was the expressed expectation that policy rates would need to become restrictive and stay that way for some time. Indeed, “inflation” was mentioned 108 times in the minutes, the most appearances of the word in a set of FOMC minutes since the pandemic started.Even with the repricing of the curve over the last few days of last week, we still think it is understating the full measure of hikes to come. The current terminal rate priced into the markets is around 3.7%. We reckon that is some 30bp too low – we see 4% reached perhaps by the end of 2022, but certainly not too far into the beginning of 2023.INGCatching our eye this European morning is news of Chinese banks cutting their loan prime rates to support the mortgage sector and also some pretty terrible Korean trade data, where the first 20 days of August produced an unprecedented US$10bn deficit. The news serves as a reminder (as did the PBOC policy rate cut this time last week) that the Chinese economy is slowing (USD/CNH now trading above 6.84) and producing very difficult trading conditions for a country such as Korea, trapped between higher imported energy costs on the one hand and slowing export markets on the other.Arguably a country like Germany faces similar challenges, where its economic model of importing cheap energy from Russia and exporting high-value goods around the world (especially to China) is facing challenges like never before. On higher energy prices, we note that natural gas costs continue to surge. And as drought conditions across Europe continue to disrupt coal shipments, similar problems in China’s Sichuan province are impacting hydro-energy supplies and increasing demand for alternatives such as natural gas.