On Wednesday, the U.S. Federal Reserve will raise its federal funds rate. JPMorgan economist Michael Feroli believes rising inflation will force the Fed to raise the rate by 75 basis point (bps) during its next meeting. CME Group data last week indicated that 95% of the market expected a 50-bps rate increase in the United States this month. Some expect a Fed that is hawkish, but others believe the U.S. central banking may be more dovish if markets worsen.
Global Markets Shake With Focus on the Fed’s Next Rate Increase — JPMorgan Economist Expects 75 bps
Major U.S. stock and cryptocurrency market indexes fell significantly Monday as Monday was considered to be one of the most bloody starts to the week for a while. CNBC’s Scott Schnipper stated Monday that the S&P 500 was now in an “official bear market,” according to S&P Dow Jones Indices.
Precious metals such as silver and gold also saw their value drop. The price of gold per ounce fell 2.67%, while silver’s dropped 3.58%. The crypto economy as a whole lost 18% on Monday, and BTC fell below $21K. All eyes now turn to the Federal Open Market Committee meeting (FOMC), where members of Federal Reserve System will likely raise the federal funds rates.
Moderate increases could be anywhere from 25 to 50 basis points. Some predict 75 basis points and the Fed could go up to 75 to 100bps at its next meeting. CME Group data last week showed that there was a 95% probability that the Fed would raise its benchmark rate by 50 basis points. Michael Feroli, a JPMorgan economist believes that a 75-bps increase is possible and that 100 bps are also possible.
In a Monday note Feroli explained to clients that the Fed may increase its rate by 75 basis points Wednesday if there is a “startling rise” in long-term inflation expectations. Feroli said that one might wonder if the surprise would be to see 100bp rise, which we consider a non-trivial threat.
Economists at Goldman Sachs Predict a 75bps Hike — JPMorgan Strategist Marko Kolanovic Believes that a Dovish Surprise could Happen
Feroli is agreed by Goldman Sachs economists who believe that a 75-bps increase will be announced at the FOMC meeting. Goldman economists said Monday that the Fed’s forecast was being revised to include 75-bps hikes in June, July.
Note from Goldman Sachs analysts to investors:
In 2023, we anticipate two rate increases to 3.75-4%. Then in 2024, one reduction to 3.5-3.75%. For a 3.25-3.5% terminal rate, we expect a 50bp rise in September. We also anticipate 25bp increases for November and December. End-2022, the median dot will be 3.25-3.5%
JPMorgan’s Markokolanovic, JPMorgan’s strategist, told the press that the U.S. would likely avoid a recession despite Feroli’s 75 bps prediction. JPMorgan Chase & Co.’s strategist explained that Fed could be dovish due to the craziness of bond markets and stock market.
Kolanovic’s Monday note to clients stated that Friday’s strong CPI print, which led to a rise in yields, and the sell-off of crypto over the weekend are weighing investor sentiment and driving market lower. The JPMorgan strategist said that rates market repricing was too extreme and that the Fed would surprise dovishly in relation to what is currently priced into the curve.