The US Federal Reserve is expected to raise the federal funds rate at its next meeting on Wednesday, and JPMorgan economist Michael Feroli estimates rising inflation will push the Fed to raise the rate by 75 basis points (bps). Last week, data from the CME Group indicated that the market was pricing a 95% chance that the US would see a 50 basis point rate hike this month. Although, while some expect a hawkish Fed, some think the US central bank could act in moderation if markets turn sour.
Global markets shudder with focus on upcoming Fed rate hike – JPMorgan economist expects 75 basis point hike
Major U.S. stock indices and cryptocurrency markets fell significantly on Monday, with the day seen as one of the bloodiest starts to a week in a long time. CNBC’s Scott Schnipper said Monday that “the S&P 500 is now in an official bear market, according to the S&P Dow Jones Indices.”
Precious metals like gold and silver also lost value, with the price of gold per ounce falling by 2.67% and that of silver by 3.58%. The entire crypto-economy lost 18% during the day on Monday and BTC fell below $21,000. Currently, all eyes are on the upcoming Federal Open Market Committee (FOMC) meeting where members of the Federal Reserve are expected to raise the federal funds rate.
Moderate increases can be between 25 and 50 basis points. The Fed can go up to 75 to 100 basis points at the next meeting and some predict 75 basis points is in the cards. Last week, data from the CME Group showed the market had a 95% chance that the Fed would raise the benchmark rate by 50 basis points. However, JPMorgan economist Michael Feroli thinks a 75 basis point hike is coming and 100 basis points is also possible.
Feroli told clients in a note on Monday that a “surprising rise in long-term inflation expectations” could prompt the Fed to raise the rate by 75 basis points on Wednesday. “One might wonder if the real surprise would actually be a 100 basis point hike, which we think is a significant risk,” Feroli added.
Goldman Sachs Economists Predict 75bp Rise – JPMorgan Strategist Marko Kolanovic Thinks a Dovish Surprise Could Happen
Goldman Sachs economists agree with Feroli as they believe a 75 basis point hike will likely be announced at the FOMC meeting. “Our Fed forecast is being revised to include 75 basis point hikes in June and July,” Goldman economists said Monday.
The Goldman Sachs analyst note to investors adds:
We expect two more rate hikes in 2023 to 3.75-4%, followed by a cut in 2024 to 3.5-3.75%. We anticipate a 50bp hike in September, followed by 25bp hikes in November and December, for a terminal rate unchanged at 3.25-3.5%. We expect the midpoint to show 3.25-3.5% at the end of 2022.
Meanwhile, despite Feroli’s 75 basis point forecast, JPMorgan’s Marko Kolanovic told reporters that the US would likely avoid a recession. The JPMorgan Chase & Co. strategist explained that the Fed may act dovish going forward due to the craziness in bond and equity markets.
“Friday’s strong CPI print that led to a surge in yields, along with crypto selling off over the weekend, is weighing on investor sentiment and driving the market lower,” the memo detailed on Monday. Kolanovic to customers. “However, we believe the rate market repricing has gone too far and the Fed will surprise dovishly relative to what is now priced into the curve,” the JPMorgan strategist added.
What do you think of the next FOMC meeting and the next rate hike? Do you think it will be moderate or aggressive? Or do you think a dovish surprise is in the cards? Let us know what you think about this topic in the comments section below.
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