Odds of 100bps Interest Rate Hike by the Fed Next Week Hits 48%

Vignesh Karunanidhi
Odds of 100bps Interest Rate Hike by the Fed Next Week Hits 48%
Source: CNBC

Data for the August 2022 Consumer Price Index are now available. The US’s 8.3% inflation rate is the lowest it has been since April 2022. At the same time, it exceeds expectations. The market’s odds of 100bps interest rate hikes increased.

The Consumer Price Index, which analyzes a variety of consumer goods and services, found that prices were up 8.3% on a yearly basis. Compared to July’s 8.5% growth and June’s 9.1% increase, this is a decline. However, the figures for August are higher than expected.

The markets were in anticipation of a 0.75% rate hike by the Fed next week. But since the CPI index is higher than the anticipated figure, the odds of a 100bps interest hike are greater.

Odds of 100bps interest rate hike hits 48%

The Nomura bank predicts that during the Fed meeting that will happen next week, the Fed is likely to raise interest rates by 100bps. The anticipated hike in interest earlier stood at 0.75bps. However, the recent rise in inflation has enticed the Fed to raise interest rates in the coming months.

The 100bps projection is especially due to the higher CPI index numbers that came out today. The most recent inflation data makes it more challenging for the Fed to scale down its rate of increase this time. The Fed is also likely to put an end to any discussion of a lesser half-percentage-point rate increase next week.

History reveals that the Fed has never increased interest rates by a full percentage since the 1990s. The Fed was also of the opinion earlier that they wouldn’t;t hesitate to make a larger move in an appropriate situation.

Now that the interest rate is projected to be around 100bps, the terminal rate is anticipated to be around 4.50-4.75%. The exact decision regarding the interest rates will be revealed next week post the meeting.