By Ambar Warrick
Investing.com – After reading beyond the estimates of US consumer inflation for August, financial markets are considering the possibility of an interest rate hike by the Federal Reserve by as much as 100 basis points next time. week.
According to CME Group’s Fedwatch tool, traders began evaluating the 35% chance that the central bank will raise rates by a full percentage point during its September 21 meeting. The remaining 65% expect the Fed to raise rates by 75 basis points (bps).
Same percentages for the Investing.com Fed Rate Monitor, which is based on 30-day fed funds futures. There seem to be no more expectations, however, for a 50 basis point rate hike.
If the new expectations materialize at the meeting of 21 September, the final rate of federal funds, which we recall regulates the cost of overnight loans, should be 3.5%.
Although US inflation is falling from its 40-year peak in June, the data suggests that it will take much longer to reach the Fed’s 2% target, which will continue to raise rates until it reaches. a similar scenario.
Markets have also begun to consider the possibility of the US benchmark rate ending the year above 4%. A scenario that envisages two more hikes of 75 basis points, followed by a milder rise of 25 basis points in the last meeting of the year.
“The breadth and resilience of inflationary pressures caused the market to shift its expectations for the final rate to 4-4.25% from the pre-publication 3.75-4% range,” analysts wrote. by ING in a note. But the bank still expects US interest rates to end the year at 4%.
The August CPI reading triggered a steep drop in financial markets on Tuesday, with Wall Street indices being hit by strong selling, especially losing 5.2% to spill over into Wednesday’s Asian session.
10-year Treasury yields rose to three-month highs after reading, while the dollar held just below the 20-year highs reached last week.