Recent reports from central bank officials indicate that the U.S. Federal Reserve is likely to increase its interest rate by approximately 75 basis points (bps), next month. Markets are also anticipating another three-quarter point increase.
CME’s Fedwatch Tool suggests that a close-certain (98%) chance is that the central bank will decide to raise its interest rate by 75 bps. Investors.com analyst says that despite the expectation of an aggressive Fed, the Fed will pivot by December based on “how financial markets act between now.
Philadelphia Fed President: “Inflation is Known to Shoot Up Like a Rocket, Then Come Down Like a Feather”
According to several reports and CME’s Fedwatch Tool, it seems quite certain that the U.S. Federal Reserve would raise the federal funds rates (FFR) by approximately 75bps.
This is despite the fact that politicians and the recent UNCTAD report have called for the Fed to slow down. This week, analysts from Barclays said that the Fed may need to reduce or slow down monetary tightening.
CME’s Fedwatch Tool shows that there is a 98% chance of a 75bps increase today. A report published by the New York Times (NYT), on October 18, states that “Federal Reserve officials” have agreed to raise interest rates by 35% next month. Other reports show that futures market investors have priced in FFR increases of up to 5% by May 2023.
Patrick Harker, president of Philadelphia Fed, stated on Thursday that he sees the FFR at 4% or higher by 2022. “After that, we can tighten, based upon the data,” FT reports. We should allow the system to work for itself. Harker said that inflation is known to rise like a rocket, then fall like a feather. FT quotes Neel Kashkari (president of the Minneapolis Fed), speaking on a panel discussing the rate rising beyond 5%.
If there is no progress in either underlying inflation nor core inflation, then I don’t see any reason why I would recommend stopping at 4.5% or 4.75%. We don’t see any progress in core inflation or services inflation.
An Analyst suspects that the Fed will pivot by December
Jed Graham, an analyst and author for investors.com, claims that a 75bps increase is possible in November but that a Fed pivot is expected in December. According to Graham’s premise. Graham’s report states that the Fed will not pivot until the labor markets shows signs of cracking. But, Graham asserts that although an overheated market allows the Fed to be more aggressive, jumbo rate increases won’t work when the market is already losing steam.
Graham’s FFR outlook adds:
The outlook depends on how the financial markets behave between now and then. The Federal Reserve would be more flexible to continue hiking if the stock market rallies and the global bond and currency markets pull back from the brink. A combination of market distress, a weak labor market, and the Fed’s December quarter-point hike could limit its ability to raise rates by 25%. But that may not be the end.
The Fed’s interest rate hikes have caused a surge in interest rates for various loans in America. According to bankrate.com, the current fixed rate for a 30-year mortgage in the United States at 7.896% is the average. The Federal Reserve will meet Wednesday, November 2, in order to discuss the FFR and discuss the central bank’s economic plan.