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2022-06-15

Decision Day for the Federal Reserve - 50, 75 or 100 Basis Point Rate Hike?

For weeks the members of the Federal Reserve's Federal Open Market Committee have been saying they'r

Decision Day for the Federal Reserve - 50, 75 or 100 Basis Point Rate Hike?

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Traders, though, are now pricing in a 75-bp hike.</p><p>Even though the central bankers have been unusually clear in stating that they plan to raise the federal funds rate target range by half a percentage point to 1.25%-1.50% at the June meeting, they always qualify the statement by saying their decision will be data-dependent.</p><p>And Federal Reserve Chairman Jerome Powell has repeatedly said that the central bank will do what it takes to bring down inflation. Last month, he emphasized, &#34;I think the one thing we really cannot do is to fail to restore price stability... Nothing in the economy works, the economy doesn&#39;t work for anybody without price stability.&#34;</p><p><b>Inflation gauge</b>: Data released on Friday could have the FOMC thinking about that bigger rate increase. The consumer price index climbed higher than expected in May, dashing hopes that inflation had already peaked. On a Y/Y basis, CPI rose 8.6% in May, exceeding the 8.2% expected and up from 8.3% in April. Stripping out volatile sectors of energy and food, CPI increased 6.0% from a year ago, just above the consensus and down from 6.2% in April.</p><p>And while the media and pundits have been making much of the hotter-than-expected CPI number, the Fed places greater weight on personal consumption expenditure numbers. In April, the most recent month PCE figures are available for, the PCE price index increased 6.3% Y/Y, as expected, and core PCE rose 4.9%, also in line. Whether CPI or PCE, both are rising far faster than the Fed&#39;s 2% inflation goal.</p><p>Steve Englander, Standard Chartered head of Global G10 FX Research and North America Macro Strategy, still expects a 50-bp hike this week, but doesn&#39;t preclude a 75 bp increase. He even sees &#34;an outside chance of 100bps at the 15 June meeting. However, this is not a Fed that likes to surprise, and the consumer confidence is shocking, so we retain 50bps as our June baseline,&#34; he wrote in a note dated June 13.</p><p>Former New York Fed president William Dudley said on Tuesday he thinks the FOMC will go with the 75 bp increment, but brings up the possibility of 100 bps, too, the <i>Wall Street Journal&#39;</i>s Michael Derby reported.</p><p>&#34;Chairman Jerome Powell and his colleagues are walking a monetary policy tightrope hoping to avoid a recession while dampening demand. This year’s decline in stock prices and rise in bond yields are among the more obvious consequences of the Fed’s actions,&#34; said Bankrate Economic Analyst Mark Hamrick.</p><p><b>Good reason to surprise</b>: Barclays&#39;s Jonathan Millar is expecting a 75bp hike this week. &#34;We think the U.S. central bank now has good reason to surprise markets by hiking more aggressively than expected in June,&#34; he wrote in a note after the CPI report was issued on Thursday. Millar also increased Barclays&#39; forecast for the terminal rate by 25 bps to 3.00%-3.25% in early 2023.</p><p>Goldman Sachs&#39; Jan Hatzius ratcheted up his expectations for the Fed to hike rates by 75 bp in both June and July, a move that would &#34;quickly reset the level of the funds rate at 2.25-2.5%, The FOMC&#39;s median estimate of the neutral rate,&#34; he wrote in a note dated June 13. (The neutral rate is when the interest rate neither fuels the economy nor hinders it.) His expectation for the terminal rate is unchanged at 3.25%-3.5%.</p><p>Deutsche Bank Chief U.S. Economist Matthew Luzzetti still expected (as of June 10) 50 bps hikes at each of the June and July meetings, but is now expecting 50-bp hikes in both September and November, then &#34;downshifting to a pace of 25bps hikes at the December meeting. The upshot is that we now see the fed funds rate ending this year at 3.125%, and peaking at 4.125% by the middle of 2023,&#34; he wrote in a note to clients.</p><p>Fed swaps trading priced a 4% terminal rate by mid-2023, Bloomberg reported on Monday. Some 175 bps of tightening is expected by September, implying two half-point increases and one 75-bp boost.</p><p><b>Economic projection update</b>: The committee will also release its Summary of Economic Projections on Wednesday, updating their expectations for a range of economic measures, including GDP growth, inflation and the unemployment rate over the next couple of years. Fed watchers, of course, will be focused on the so-called dot plot that summarizes the expected path of the fed funds rate.</p><p>In the March SEP, Fed members&#39; median projections were for federal funds rate of 1.9%, GDP growth of 2.8%, PCE inflation of 4.3%, and unemployment rate of 3.5% at the end of 2022. For the dot plot, more than half of the FOMC members expected at least seven quarter-point rate increases — or 175 bps; of that amount 75 have already been implemented this year.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Decision Day for the Federal Reserve - 50, 75 or 100 Basis Point Rate Hike?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDecision Day for the Federal Reserve - 50, 75 or 100 Basis Point Rate Hike?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2022-06-15 08:05 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/news/3848168-fomc-preview><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>For weeks the members of the Federal Reserve's Federal Open Market Committee have been saying they're on board with boosting their key policy rate by 50 basis points at each of the next two meetings. ...</p>\n\n<a href=\"https://seekingalpha.com/news/3848168-fomc-preview\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{".SPX":"S&P 500 Index",".IXIC":"NASDAQ Composite"},"source_url":"https://seekingalpha.com/news/3848168-fomc-preview","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2243881989","content_text":"For weeks the members of the Federal Reserve's Federal Open Market Committee have been saying they're on board with boosting their key policy rate by 50 basis points at each of the next two meetings. Traders, though, are now pricing in a 75-bp hike.Even though the central bankers have been unusually clear in stating that they plan to raise the federal funds rate target range by half a percentage point to 1.25%-1.50% at the June meeting, they always qualify the statement by saying their decision will be data-dependent.And Federal Reserve Chairman Jerome Powell has repeatedly said that the central bank will do what it takes to bring down inflation. Last month, he emphasized, \"I think the one thing we really cannot do is to fail to restore price stability... Nothing in the economy works, the economy doesn't work for anybody without price stability.\"Inflation gauge: Data released on Friday could have the FOMC thinking about that bigger rate increase. The consumer price index climbed higher than expected in May, dashing hopes that inflation had already peaked. On a Y/Y basis, CPI rose 8.6% in May, exceeding the 8.2% expected and up from 8.3% in April. Stripping out volatile sectors of energy and food, CPI increased 6.0% from a year ago, just above the consensus and down from 6.2% in April.And while the media and pundits have been making much of the hotter-than-expected CPI number, the Fed places greater weight on personal consumption expenditure numbers. In April, the most recent month PCE figures are available for, the PCE price index increased 6.3% Y/Y, as expected, and core PCE rose 4.9%, also in line. Whether CPI or PCE, both are rising far faster than the Fed's 2% inflation goal.Steve Englander, Standard Chartered head of Global G10 FX Research and North America Macro Strategy, still expects a 50-bp hike this week, but doesn't preclude a 75 bp increase. He even sees \"an outside chance of 100bps at the 15 June meeting. However, this is not a Fed that likes to surprise, and the consumer confidence is shocking, so we retain 50bps as our June baseline,\" he wrote in a note dated June 13.Former New York Fed president William Dudley said on Tuesday he thinks the FOMC will go with the 75 bp increment, but brings up the possibility of 100 bps, too, the Wall Street Journal's Michael Derby reported.\"Chairman Jerome Powell and his colleagues are walking a monetary policy tightrope hoping to avoid a recession while dampening demand. This year’s decline in stock prices and rise in bond yields are among the more obvious consequences of the Fed’s actions,\" said Bankrate Economic Analyst Mark Hamrick.Good reason to surprise: Barclays's Jonathan Millar is expecting a 75bp hike this week. \"We think the U.S. central bank now has good reason to surprise markets by hiking more aggressively than expected in June,\" he wrote in a note after the CPI report was issued on Thursday. Millar also increased Barclays' forecast for the terminal rate by 25 bps to 3.00%-3.25% in early 2023.Goldman Sachs' Jan Hatzius ratcheted up his expectations for the Fed to hike rates by 75 bp in both June and July, a move that would \"quickly reset the level of the funds rate at 2.25-2.5%, The FOMC's median estimate of the neutral rate,\" he wrote in a note dated June 13. (The neutral rate is when the interest rate neither fuels the economy nor hinders it.) His expectation for the terminal rate is unchanged at 3.25%-3.5%.Deutsche Bank Chief U.S. Economist Matthew Luzzetti still expected (as of June 10) 50 bps hikes at each of the June and July meetings, but is now expecting 50-bp hikes in both September and November, then \"downshifting to a pace of 25bps hikes at the December meeting. The upshot is that we now see the fed funds rate ending this year at 3.125%, and peaking at 4.125% by the middle of 2023,\" he wrote in a note to clients.Fed swaps trading priced a 4% terminal rate by mid-2023, Bloomberg reported on Monday. Some 175 bps of tightening is expected by September, implying two half-point increases and one 75-bp boost.Economic projection update: The committee will also release its Summary of Economic Projections on Wednesday, updating their expectations for a range of economic measures, including GDP growth, inflation and the unemployment rate over the next couple of years. Fed watchers, of course, will be focused on the so-called dot plot that summarizes the expected path of the fed funds rate.In the March SEP, Fed members' median projections were for federal funds rate of 1.9%, GDP growth of 2.8%, PCE inflation of 4.3%, and unemployment rate of 3.5% at the end of 2022. For the dot plot, more than half of the FOMC members expected at least seven quarter-point rate increases — or 175 bps; of that amount 75 have already been implemented this year.","news_type":1},"isVote":1,"tweetType":1,"viewCount":206,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":2,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}