Following the recent US CPI report, which showed America’s inflation hit a 40-year high, many expect the Federal Reserve to raise its benchmark interest rate by 75 to 100 basis points (bps) on July 26. The Fed will raise rates by 75 basis points, and bankrate.com believes that a three-quarter rate hike is also on the horizon.
All eyes on the Fed’s next move as market strategists predict a 75-100 basis point rate hike next week
Next week, in about six days, the US central bank will meet again to assess and change the federal funds rate. The Federal Reserve is raising the base rate from mid-March 2022. At that time, in March, the central bank raised its benchmark interest rate from almost zero to 0.25% for the first time since 2018. After the Fed did this, US inflation continued to rise and JPMorgan economists predicted the central bank would raise rates by 75 basis points in June.
The rate hike prediction came true as the U.S. central bank raised the federal funds rate by 75 basis points on June 15, 2022. There has not been a 75 basis point jump in America since Alan Greenspan was the 13th chairman of the Federal Reserve in 1994. At that time, Democratic President Bill Clinton ruled the country, and inflation was quite low – 2.7%. However, many observers of the time said Greenspan was often hawkish and the market indices became volatile.
Prior to the infamous 75 basis point Greenspan rate hike, tech giant Cisco Systems was down 16% in value and fell by 54% until October 1994. Shares of Applied Materials corrected 30% and EMC faced a similar decline. Abby Cohen, Investment Strategist at Goldman Sachs noted that almost 40% of all active stocks are down more than 30% from their highs in 1994. Greenspan began to tighten monetary policy, and Standard & Poor investment strategist Arnold Kaufman said at the time that the US economy would recover. in 1995.
“We don’t see this as a bear market,” Kaufman explained that same year. “The difference is that we are buying the soft landing concept. [for the economy]others don’t.”
Kaufman was right, because the US economy was growing and the market indices were less volatile and began to rise steadily in 1995. More than 27 years later, the 16th Federal Reserve Chairman, Jerome Powell, seems to have been hawkish ever since. the first rate hike in March. As inflation continues to print perpetual highs, Powell thinks that the current price pressure will dissipate quickly, and the central bank chairman believes that the Fed can tame the red-hot inflation.
Blackstone and Bankrate.com Pencil in 75 basis point rate hikes, others expect 100 basis point jump
Joseph Siedl, chief investment strategist at Blackstone Private Wealth Solutions, currently believes there will be a 75 basis point rate hike next week. “I think the federal funds rate could go over 4%. I think they could go over 4.5%, maybe even close to 5%,” Zidl. said Bloomberg during an interview. In addition to Blackstone’s suggestion, bankrate.com also prediction an increase of 75 basis points during the next Fed meeting. Bankrate.com reports that US central bank policymakers are “not going to stop.” The financial bank rate comparison website added:
Fresh forecasts, also released alongside the June decision, show a federal funds rate of 3.25% to 3.5% by the end of 2022, the highest since 2008.
Meanwhile, there are many higher projections as some believe that a 100 basis point gain could very well happen. “Given such high inflation, the next Fed rate hike could be the biggest in decades.” report notes and details published by Barron, the next rate hike could be 1%. In addition, other sources such as CBSas well as CNBCindicate that a 100 basis point increase will be announced at the monthly meeting of the Federal Open Market Committee (FOMC) next Wednesday.
What do you think the Fed will do during the next FOMC meeting? Do you expect 75 basis points or 100 basis points up next week? Let us know your thoughts on this in the comments section below.
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