Fed Expected to Increase Rates by 75 Basis
Points This Week
September 19, 2022
Fed officials will release their policy statement at 2PM on Wednesday, and it is widely expected they will announce a third 75 basis point hike. In addition, they are expected to release updated forecasts showing rates moving to 4% over the next few months, from a current range of 2.25% - 2.50%. Last week’s CPI reading for the month of August, which showed inflation remaining stubbornly high, solidified the real potential for another large increase by the Fed.
Some investors are making a case for the Fed to increase rates by a full percentage point, arguing that the Fed needs to get ahead of inflation while consumer spending remains robust amid a very tight labor market. If the Fed raises rates by 100 basis points (bps), it would be the largest increase since the era of former Fed Chair Paul Volcker. However, most investors and economists expect a 75 basis point move as a larger increase could have the unintended effect of increasing speculation for Fed rate cuts in 2023. “Pushing back against expectations of easing next year is not merely a matter of aligning forecasts, but rather of exerting more influence over longer-term interest rates,” said Michael Feroli, Chief US Economist at JPMorgan.