Markets Almost Evenly Split Over 50 and 75bps Hike at Next Fed Meeting
2022.08.22 09:57
By Ambar Warrick
Investing.com– Expectations for the Federal Reserve’s next interest rate hike are almost evenly split between a 50 and 75 basis point (bps) raise, data from exchange operator CME Group showed on Monday.
According to CME’s FedWatch tool, about 54% of traders are pricing in a 50 bps raise, while the remaining 46% expect a 75 bps raise. In comparison, last week, 69% of traders expected a 50 bps rate hike, while 31% expected a 75 bps raise.
U.S. benchmark interest rates are currently between 2.25% and 2.50%, after a series of sharp hikes by the Fed this year.
The divided expectations come in the wake of mixed economic signals from the United States. While data earlier this month showed U.S. inflationary pressures eased slightly in August, several Fed members suggested that the bank would likely keep hiking rates at a sharp pace to bring inflation down further.
Consumer price inflation in the country is still around its highest level in nearly 40 years. The consumer price index read at an annual rate of 8.5% in July, compared to the Fed’s target of 2%.
This has seen some officials suggest that the U.S. interest rates could rise as high as 3.75% by the end of 2022. But this has also brewed concerns that high lending rates could hamper economic growth, causing a recession in 2022.
Uncertainty over the path of U.S. interest rates has also caused sharp swings in financial markets, with the dollar index hitting a five-week high on Monday amid increased volatility. Risk-driven stock and currency markets tumbled, while U.S. Treasury yields crept higher.
Focus this week is on Fed Chair Jerome Powell’s address to the Jackson Hole Symposium on Friday, where the chair is expected to comment on a potential dovish pivot by the Fed.
