Odds of a 75bps rate hike in December jump after inflation data

  • Investors pushed up expectations that the Federal Reserve at its December meeting will make another 75 basis point rate hike.
  • The likelihood of another three-quarter point increase has risen to 61.8% from 32.5% a day ago.
  • The move came after core inflation in September hit 6.6%, a 40-year high.

Core US inflation in September rose more than economists had expected, prompting investors on Thursday to raise expectations that the Federal Reserve at its December meeting will hike further. important in rates.

The FedWatch CME Tool showed a 61.8% probability of a 75 basis point rate hike at the December 13-14 central bank meeting, up from 32.5% the day before.

At the same time, the probability of a 50 basis point rate hike fell to 36.9% from 58% the previous day. The probability of a 100 basis point rate hike has increased slightly from 0% to 1.4% over the past month.

The inflation report also cemented expectations that the Fed would raise its benchmark rate by 75 basis points at its November 1-2 meeting. If the forecast for the next two Fed meetings holds, it would prolong the series of giant hikes. Last month, the Fed announced its fifth rate hike in 2022 and a third straight rate hike of 75 basis points.

The moves came after the Bureau of Labor Statistics said the core consumer price index – which measures inflation excluding volatility in food and energy prices – increased by 6.6% over the year to Septemberfastest price growth since 1982.

The reading beat expectations of 6.5% among economists polled by Bloomberg. Housing prices led the rise, rising 0.7% during the month. Headline inflation fell to an annual rate of 8.2% from 8.3% in August as gasoline and food prices fell. But the acceleration of underlying inflation indicates a worrying trend.

“This is the Fed’s nightmare scenario: the risk of inflation remaining entrenched because services inflation is much harder to bring down than energy inflation,” wrote Jan Szilagyi, CEO of the research firm. in Toggle AI investing. “The Fed will see this as a license to remain aggressive as labor markets remain strong and the public tolerates rate hikes. More than that, they will maintain a hawkish message to avoid the perception that they are on edge. feet around the matter.”

US stocks initially fell after the inflation report, but ended higher in a rally. The S&P500 climbed 2.6% and the Nasdaq Compound gained 2.3%. During this time, the US dollar index fell, down 0.7%.

“The CPI report was a stark reminder that the Fed still has a lot of work to do. For every category that looked to be improving, two deteriorated,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management, in a note. “Next earnings season should be doubly strong to offset headwinds from an ever more aggressive Fed.”

Leave a Comment

Your email address will not be published. Required fields are marked *