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Limited seats available, first come first served. Let us embark together on the journey of sustainability! [Click to register] A forecaster who was the first to predict the Federal Reserve's most recent rate hike now says the Fed could deliver a larger, 50-basis-point increase in December.
Jason Schenker, president of Prestige Economics, said he believes the Fed is unlikely to raise rates at this month's meeting. Instead, he thinks the Fed may let its September hike "catch its breath" before potentially making a larger move in December.
"By December, if after the September hike inflation has not been contained in a more meaningful way, they may choose to hike 50 basis points rather than 25 basis points — taking a bigger bite," Schenker said.
Fed Chair Kevin Warsh brought the Fed into rate-hiking mode last month — the first time since 2023 — in an attempt to curb rising inflation. While many economists had expected that hike in the weeks before the September meeting, Schenker was the first among surveyed economists to predict it back in June.
Schenker writes forecasts at Prestige, which frequently ranks among the top-performing foreign exchange forecasters on Bloomberg's leaderboard.
Recently, the focus of discussion among traders and economists has been whether the Fed will raise rates by another 25 basis points this month or save that move for the December meeting. Swap markets have fully priced in a 25-basis-point hike in December. As surging fuel costs pushed consumer inflation above economists' expectations, the probability of an October hike in futures markets briefly rose above 50% before retreating on Wednesday.
However, Schenker believes the Fed will not have enough information at its October meeting to act again, because a large portion of the data released on Wednesday was collected before the Fed's September hike.
"I think there aren't enough data points to give them the kind of confidence they might need," Schenker said.
Meanwhile, between the October and December meetings, Fed officials will also receive two employment reports and one CPI reading, which can inform future decisions.
"It's only a six-week wait, but they'll get more data," Schenker said. "If they see that 25 basis points didn't do anything, then I think they might bring out 50 basis points."
Schenker expects that a larger hike could mean a pause in further rate increases early next year, while a December hike of only 25 basis points would make another rate increase in the first quarter of next year "more likely."
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