How Big Will the Fed Rate Hike Be? Wall Street’s Top Minds Weigh In – Kiplinger’s Personal Finance

The Federal Reserve’s rate-setting committee kicks off its regularly scheduled two-day meeting on Tuesday, and it’s all but certain to deliver yet another jumbo interest rate hike.

The great bulk of traders, investors, economists and strategists are forecasting a 75 basis point (bp) increase to the federal funds rate when Chair Jerome Powell and the rest of the Federal Open Market Committee (FOMC) wrap up their latest policy confab on Wednesday. (A basis point equals 0.01%, by the way.) The Fed will release its decision at 2:00 pm Eastern. However, as per usual, market participants are likely to be more keen on what Powell has to say at his post-proclamation press conference scheduled shortly thereafter.

The market has had plenty of time to digest another big rate hike, and it really should come as no surprise. Powell has never been one to mince words, for one thing. Besides, the latest readings on inflation showed that a number of key components of the consumer price index continue to expand at alarming rates.

Inflation, it seems, is by no means under control. The economy, despite feelings to the contrary, remains way too hot. 

The question then isn’t so much whether the Fed will hike by 75 bp later this week. (Although a not insignificant portion of the bond market is betting on a 100 bp hike.) Rather, the big unknown is where and when does the Fed’s current policy of tightening end? 

The Fed is striving to pull off everyone’s dream scenario of a so-called soft landing. Yet history suggests such feats are exceedingly rare. And so, as we’ll see in much of the commentary below, prognosticators are increasingly fearful that the only way to achieve the Fed’s 2% inflation target is for the economy to slip into recession.

With the FOMC’s Wednesday policy announcement dominating the market’s psyche, we figured it was a good time to round up some select analysis from economists, strategists, chief investment officers and the like. Below please find a smattering of what the pros are expecting out of the Fed and the market in the days ahead:

  • “Any hopes of a fast retreat in core inflation were quickly dashed with the latest U.S. CPI report. U.S. consumer prices climbed 8.3% year-over-year in August, marking a slight slowdown thanks to a decline in gas prices. Meanwhile, core CPI, which removes volatile food and energy components, doubled market expectations, jumping 0.6% month-to-month, and 6.3% from a year ago. The hotter-than-expected report highlights just how persistent price pressures are, and all but cements another historically large Fed rate hike.” – Priscilla Thiagamoorthy, economist at BMO Capital Markets Economic Research 
  • “We expect the FOMC to deliver a third 75 bp rate hike at its September meeting, …….


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