Fed expected to raise rates by a quarter point as market odds exceed 90%
Traders assign over a 90% chance that the Federal Open Market Committee will lift the overnight funds rate by 0.25 percentage point to a 3.75%-4% range, reflecting recent inflation data and comments from Fed officials.
Wall Street traders now see a greater than 90% likelihood that the Federal Open Market Committee will increase the benchmark overnight funds rate by a quarter percentage point, moving the target range to 3.75%-4%, according to the CME Group's FedWatch futures gauge. The probability has risen sharply from about 36% a month earlier, after recent inflation reports, a tightening labor market and higher crude oil prices following geopolitical tensions.
Federal Reserve Chairman Kevin Warsh’s remarks at the annual Jackson Hole symposium, along with the latest data, have contributed to the shift in expectations. Morgan Stanley economists, citing Warsh’s comments and the rise in oil prices, revised their outlook from no hikes this year to two, anticipating one at the upcoming meeting and another in December. > "Not doing so would risk loss of credibility and a potential rise in longer-term risk premia similar to the reaction after the July FOMC meeting," wrote Michael Gapen, chief U.S. economist for Morgan Stanley.
If approved, the move would be the first rate hike since July 2023, after six prior cuts that lowered rates by a total of 175 basis points. The committee will also release its Summary of Economic Projections, updating forecasts for unemployment, inflation, GDP and, for the first time, expectations for 2029.