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Fed Jumbo Hike in Play for September Even if August Inflation Cools, Experts Say

Economy Sep 12, 2022 04:15PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com --  The Federal Reserve’s recent willingness to endorse rather than push back against aggressive rate hike bets took many by surprise, and now some on Wall Street believe that a 75-basis-point hike is firmly on the table even if Tuesday's data shows cooling inflation.

Morgan Stanley said in a recent note that it was expecting Fed members to “dial down the cadence of monetary tightening to 50bps at the September meeting," but now believes “75bps is now the most likely outcome for September, even though the August CPI print is still outstanding.”

Inflation is expected to have slowed by 0.1% in August from July, and slowed to 8.1% in the 12 months through August from 8.5%, weighed down by falling oil prices.

Core inflation, however, which excludes volatile food and energy prices, and is more indicative of underlying price pressures is expected to have remained steady at 0.3% in August, but risen to 6.1% in the 12 months through August.

Others agree, noting that a slowdown in the pace of inflation isn’t likely to force the Fed’s hand into a less hawkish decision as inflation would still remain well above the Fed’s 2% target.

If inflation, particularly core inflation “comes in at a little bit more mitigated,” it would still be “too early” for the Fed to pivot to a 50-basis point rate hike, Johan Grahn, head of ETF Strategy at Allianz told Investing.com in a recent interview.

“Inflation is nowhere near to what the Fed is aiming for,” Grahn added. “If they start wavering in their communication and turn a little bit more dovish, they’ll be increasing the chance of failing to achieve their inflation target.”

The need for speed on rate hikes, however, will likely take the Fed’s benchmark rate to about 3.875%, close to restrictive territory, Morgan Stanley said as it forecasts another 50bps hike in November and a final 25bps in December.

Lifting rates to restrictive territory, one which neither stimulates nor weighs on economic growth, will likely "move the Fed to shift to a hawkish hold after the December meeting," Morgan Stanley adds, but cautions that there’ll be “little room for a return to rate cuts except in scenarios of an extremely sharp downturn.”

Fed Jumbo Hike in Play for September Even if August Inflation Cools, Experts Say
 

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Comments (28)
Tilak Mundu
tluck Sep 13, 2022 8:05AM ET
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fake news
Vito Tagliano
Vito Tagliano Sep 13, 2022 2:46AM ET
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People still spending, Company’s still selling their product High. If Markets continue to fight the Fed, they will package nice recession similar to Paul Volcker to extract Peoples savings accounts and force the Markets to bend the Knee!
Jeremy Thornton
Jeremy Thornton Sep 13, 2022 1:27AM ET
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Almost nobody is mentioning the massive QT that is just getting underway...
Sep 13, 2022 1:07AM ET
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watch the ray and Volcker interview....only thing that counts that you prepare not to get wiped out
Chad Richer Than You
Chad Richer Than You Sep 12, 2022 11:01PM ET
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Jumbo or dwarf hikes no longer matters. Try something else..
Ron Cole
Ron Cole Sep 12, 2022 11:01PM ET
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cut back spending and lower taxes
Tyler Phillis
Tyler Phillis Sep 12, 2022 11:01PM ET
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Ron Cole  It's sad how few people consider this an option. I would say yes to both, but I would also propose that We The People place additional limits on government power with an amendment restricting its lawmaking power. A prohibition on laws that attempt to control or interfere with peaceful trade. The Commerce Clause has been distorted beyond reason, showing that politicians cannot be trusted and should not be expected to "manage" the economic affairs of the citizens. I would also back an amendment barring government from education and science.
katarakilraj Kilraj
katarakilraj Kilraj Sep 12, 2022 10:44PM ET
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katara kilraj
Marco cuevas
Marco cuevas Sep 12, 2022 8:57PM ET
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Fake financial journalism is in full tnrottke mide getting to your emotioons.
Jose Cabreja
Jose Cabreja Sep 12, 2022 8:01PM ET
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"experts"🤣🤣🤣
Bill Bill
Bill Bill Sep 12, 2022 7:39PM ET
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Fake fear, so good sign.
Kelly Tracy
Kelly Tracy Sep 12, 2022 7:24PM ET
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The midterms have some say with rates. Dems don't want to have a decimated stock market before Nov. So if the Cpi is not too hot, then 50 basis points is their figure to keep the markets from crashing.
 
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