With U.S. inflation reaching a 40-year high in the recent U.S. Consumer Price Index, many expect the Federal Reserve to raise its benchmark interest rate 75 to 100 basis points (bps) on July 26. Blackstone Private Wealth Solutions expects the Fed to raise rates by 75 bps, and bankrate.com sees as much as a three-quarter hike.
Watch for the Fed’s next move – market strategists expect a 75-100 bps rate hike next week
Next week, roughly six days from now, the US central bank will meet again to assess and change the Federal funds rate. The Federal Reserve has been raising its benchmark interest rate since mid-March 2022; at that time in March, the central bank raised its benchmark rate from near zero to 0.25% for the first time since 2018; after the Fed did that, U.S. inflation continued to rise, and economists at JPMorgan predicted that the central bank would raise rates by 75 bps in June.
The rate hike forecast came true and the U.S. central bank raised the federal funds rate by 75 bps on June 15, 2022. The US had not seen a 75 bps jump since 1994, when Alan Greenspan was the 13th Federal Reserve chairman. At the time, the administration was run by Democratic President Bill Clinton, and inflation was at a much lower 2.7%. But many observers at the time said,However, many noted at the time that Greenspan was hawkish and market indicators were becoming more volatile.
Prior to Greenspan’s infamous 75 bps gain, tech giant Cisco Systems had lost 16% of its value,and by October 1994 had dropped 54%. Stocks derived from Applied Materials corrected 30%, and EMC saw a similar decline. Goldman Sachs investment strategist Abby Cohen (26) noted that nearly 40% of all active stocks have fallen 30% or more from their 1994 highs (27). Greenspan turned to monetary tightening, and Standard&Poor’s investment strategist Arnold Kauff&Arnold Kauffman, investment strategist at Standard, said at the time that the U.S. economy would recover in 1995.
“We don’t see this as a bear market,” Kaufman explained that year.” The difference is that we buy into the concept of a ‘soft landing’ (of the economy), while others do not.”
Kaufman was right. The U.S. economy picked up, market indices became less volatile, and in 1995 began a steady climb. More than 27 years later, Jerome Powell, the 16th Fed chairman, seems to be in hawkish mode since the first rate hike in March. Inflation is at perpetual highs, but Powellbelieves that current price pressures will dissipatequickly, and the central bank chairman believes that the Fed can tame scorching inflation.
Blackstone and Bankrate.com expect a 75 bps gain, while others expect a 100 bps increase
. Joseph Zidle, currently chief investment strategist in Blackstone’s Private Wealth Solutions group, believes a 75 bps rate hike will take place next week. In my own view,” Zidletoldin an interview, “I think the Fed Funds Rate could go above 4%, it could go above 4.5%, it could go closer to 5%. In addition to Blackstone’s speculation, bankrate.com also expects a 75 bps hike during the next Fed meeting Bankrate.com said U.S. central bank policymakers “show no signs of stopping.” The financial institution’s interest rate comparison site adds that
Fresh forecasts released in the June decision also show that the federal funds rate will be 3.25-3.5% by the end of 2022, the highest since 2008.
On the other hand, there are many higher forecasts, with some saying that a 100 bps hike is well within reach. Areportpublished by Barron’s noted that “inflation is so hot that the Fed’s next rate hike could be the biggest in decades,” and detailed that the next hike could be 1%. Additionally, other sources arise from sources such as, CBSand, CNBC, etc.; CNBC54} CBS,CNBC, etc., says that at next Wednesday’s Federal Open Market Committee (FOMC) monthly meeting a 100 bps hike will be announced.
Image credits: Shutterstock, Pixabay, Wiki Commons