Fed rate hike bets surge as Wall Street analysts converge on September move
At a Glance
In a notable shift, the consensus among major U.S. financial institutions is aligning towards a Federal Reserve interest rate hike as early as this week, driven by recent inflation data and rising bond yields. Per the full note , analysts from Goldman Sachs, JP Morgan, and HSBC now foresee a 25 basis point increase in September, deviating from initial expectations for a hold. This pivot indicates a broader anxiety surrounding persistent inflation, exacerbated by upticks in oil prices and long-term yields, further suggesting that the Fed is likely to act decisively rather than risk surprising the market. As traders assess these movements, the market is now pricing in an approximately 87% probability of a hike during this FOMC meeting, which reflects a significant shift in sentiment among major players.
Key Takeaways
- 01Major banks are now aligned on a September Fed rate hike, suggesting urgent inflation concerns.
- 02Market pricing for a rate hike has jumped to approximately 87%, reflecting strong trader sentiment.
- 03Rising oil prices and bond yields are key factors in shaping these expectations.
- 04HSBC notably predicts both a September and December hike, indicating a potential trend.
Full Analysis
What the desk is arguing
The desk sees the risk of a Federal Reserve rate hike this week as increasingly likely based on the latest analyst consensus, particularly following firm CPI readings. Per the full note , Goldman Sachs, along with other major banks, has aligned its projections, with some predicting further hikes later this year as well.
This swift turnaround in expectations comes as inflation data indicates that disinflation may not be proceeding as hoped, with oil prices exceeding $100. Analysts from JP Morgan encapsulate this change, stating that strong inflation signals make a September rate adjustment "more likely than not."
Where it sits in our coverage
Our consensus target for the dollar is 1.075 with a range from 1.04 to 1.12. Key targets from major banks include: - jpmorgan: 1.10 (Mar26) - deutschebank: null - bofa: 1.04 (Mar26)
This desk's perspective aligns closely with jpmorgan's revised forecast and sits towards the higher end of the range reflecting a more hawkish outlook, especially as inflation pressures remain significant.
How other firms see it
Many firms are converging on a similar stance with Goldman Sachs and JP Morgan forecasting immediate rate hikes, while bofa takes a contrarian view suggesting a more stable rate environment. This polarization highlights the ongoing uncertainty surrounding the Fed's policy path.
The trajectory of USD/JPY could act as a bellwether for how these rate expectations are absorbed across the FX landscape, especially with upcoming economic data influencing trading strategies significantly.
Market Implications
Traders should closely monitor USD against its peers, particularly against the backdrop of the Fed's policy decision this week. The probability of a hike highlights potential volatility in the latter part of the week, especially around key technical levels.
From the original
It is getting increasingly difficult to find anyone willing to stand in the way of a Fed rate hike this week. The shift in analyst expectations has been pretty striking as we get into the new week. That especially after the US CPI report on Friday, continued tensions between US a
Related speeches
4 itemsGoldman ditches one and done call, now sees a second Fed hike in October
The recent shift by Goldman Sachs to anticipate a second Federal Reserve rate hike as soon as October, abandoning their previous 'one and done' forecast, signals a more hawkish tone across the marketplace. Per the full note from InvestingLive, their expectations follow a more aggressive outlook from Wednesday's FOMC meeting, highlighted by a 16-2 dot plot supporting further hikes and an upward adjustment of the median neutral rate path to 3.25%. This recalibration suggests that other desks may also revise their timelines, enhancing support for both short-end yields and the U.S. dollar as markets price in a higher for longer scenario heading into the midterms. Furthermore, this creates a live meeting risk during a politically sensitive period, challenging previous assumptions about the Fed's timing strategy amidst the elections.
Warsh shift points to an ‘insurance’ Fed hike
Recent commentary from Kevin Warsh at the Jackson Hole Symposium indicates a significant shift in the Federal Reserve's policy posture, moving from a patient rate-holding strategy to a more hawkish stance where a rate hike appears more likely. Per the full note [source], the Fed, driven by persistent inflationary pressures, now prioritizes a preemptive hike to ensure inflation returns to target, which fundamentally alters the analysis surrounding the September decision. The new stance suggests that unless the upcoming labor and inflation data are exceedingly weak, a hike is now the default expectation. Notably, the September 4 jobs report and the September 11 CPI print will be critical data points under this new framework.
More like this
5 itemsSt. Louis Fed’s Musalem: Interest rates likely need to rise further to tame inflation
BOC’s Macklem: It could take some time for higher fuel margins to normalise
BOC’s Macklem: It could take some time for higher fuel margins to normalise
Fed policymaker Goolsbee warns strong demand may be fueling US inflation as rate hike outlook hardens