The US Federal Reserve is expected to raise the federal funds rate at its next meeting on Wednesday, and JPMorgan economist Michael Feroli believes rising inflation will push the Fed to raise rates by 75 basis points (bp). Last week, CME Group data showed that the market estimated a 95 percent chance that the US interest rate would rise by 50 basis points this month. While some are expecting a hawkish Fed response, some believe the US central bank could be dovish if markets deteriorate.
Global markets shuddered as they focused on the Fed’s next rate hike – JPMorgan economist expects a 75 basis point hike
Major U.S. stock indices and cryptocurrency markets fell significantly on Monday, as the day is seen as one of the bloodiest early weeks in a long time. Scott Schnipper of CNBC said on Monday that “the S&P 500 is now in an official bear market according to the S&P Dow Jones Indices.”
Precious metals such as gold and silver also fell in price, with the price per ounce of gold falling 2.67% and silver falling 3.58%. The entire crypto economy lost 18% during the day on Monday and BTC fell below $21K. At present, all eyes are on the upcoming meeting of the Federal Open Market Committee (FOMC), at which members of the Federal Reserve are expected to raise the federal funds rate.
A moderate increase could be 25 to 50 basis points. The Fed could move up 75-100 basis points during the next meeting and some predict 75 basis points in cards. Last week, CME Group data showed that the market is valued at 95% chance that the Fed would raise its base rate by 50 basis points. However, JPMorgan economist Michael Feroli thinks a 75 basis point gain is coming, and a 100 basis point gain is also possible.
Feroli said clients in a note on Monday that “a striking rise in long-term inflation expectations” could prompt the Fed to raise rates by 75 basis points on Wednesday. “One might wonder if the real surprise would really be a 100 basis point move up, which we think is a non-trivial risk,” Feroli added.
Goldman Sachs economists forecast 75 basis points up – JPMorgan strategist Marko Kolanovic thinks dove surprise could happen
Economists at Goldman Sachs agree with Feroli because they believe a 75 basis point increase is likely to be announced at the FOMC meeting. “Our Fed forecast is being revised to include a 75 basis point hike in June and July,” Goldman economists explained on Monday.
A note from Goldman Sachs analysts to investors added:
We expect two more rate hikes in 2023 to 3.75-4% and then another cut in 2024 to 3.5-3.75%. We expect an increase of 50 bps in September and then 25 bps in November and December, with a flat terminal rate of 3.25-3.5%. We expect the median point to show 3.25-3.5% at the end of 2022.
Meanwhile, despite a Feroli forecast of 75 basis points, JPMorgan Marko Kolanovic told the press that the US is likely to avoid a recession. Strategist at JPMorgan Chase & Co. explained that the Fed may be dovish in the future due to the craziness in the bond and stock markets.
“The strong CPI on Friday, which drove yields higher, along with the crypto sell-off over the weekend, is putting pressure on investor sentiment and driving the market down,” Kolanovic notes to clients. detailed on Monday. “However, we believe the market’s rate repricing has gone too far and the Fed will be a dovish surprise compared to what is currently on the curve,” the JPMorgan strategist added.
What do you think about the upcoming FOMC meeting and the next rate hike? Do you think he will be moderate or aggressive? Or do you think that you are in for a pigeon surprise? Let us know what you think about it in the comments section below.
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