Global banks coalesce around Fed hike call after inflation surprises
A growing number of brokerages expect the Federal Reserve to raise rates this week after stronger-than-expected inflation readings raised doubts that price pressures would ease without further tighten...
Brokerages, including Goldman Sachs, JP Morgan, HSBC, and Deutsche Bank, are converging on the expectation that the Federal Reserve will raise interest rates this week. This consensus comes after stronger-than-anticipated inflation readings, which have cast doubt on price pressures easing without more aggressive tightening. The Federal Reserve is set to meet on September 15-16, and several banks anticipate a quarter-point increase during this session.
They also foresee rates remaining elevated for extended periods to bring inflation back in line with the 2% target.
The shift in sentiment is a significant departure from earlier this year when many economists predicted the Fed would hold steady. Recent data reveals that US consumer and producer prices surged more than expected in August, while oil prices crossed the $100 per barrel mark due to renewed tensions in the Middle East. This inflationary pressure has raised concerns that it may persist, prompting economists like HSBC's Ryan Wang to call for a September rate hike.
JP Morgan has also adopted a more hawkish stance following the inflation reports. The bank's economists, led by Michael Feroli, noted that the recent rise in bond yields and energy prices, coupled with solid inflation readings, make a rate hike at the upcoming FOMC meeting more probable. They further emphasize that the latest economic data undermines the prospect of sustained disinflation, projecting another Fed rate hike this year and revising their estimate of the long-run policy rate upwards to 3.25%.
Market participants are pricing in a 90% chance of a quarter-point Fed rate hike this month, up from around 70% prior to the latest inflation data, with a subsequent increase expected in December.
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