Observers suspect an aggressive Fed rate hike next month, one analyst predicts the Fed will pivot in December

Markets are forecasting another three-quarter point hike, and CME’s Fedwatch tool says there is an almost certain chance (98%) that the central bank will opt for a 75bp hike. While the market is expecting an aggressive Fed, an analyst believes the Fed will pivot by December based on “the attitude of the financial markets between now and then“.

Philadelphia Fed President:”Inflation has been known to go up like a rocket and come down like a feather“.

It seems all but certain that the U.S. Federal Reserve will raise the federal funds rate (FFR) by about 75 basis points, according to various reports and information available. This is despite the fact that politicians and a recent report from the United Nations Conference on Trade and Development (UNCTAD) have urged the Fed to slow down. Analysts at investment bank Barclays explained this week that the central bank may have to slow or stop monetary tightening by eliminating balance sheet reductions.

CME’s Fedwatch tool says the probability of a 75 basis point jump is about 98% today and that a 75 basis point jump is possible, an article in the New York Times, states that “Federal Reserve officials have rallied behind a plan to raise interest rates by three-quarters of a point next month“. The NYT report further explains that “the conversation about whether to cut rates is now more likely to take place in December“. Another article indicates that futures investors have fully priced in a number of FFR increases that will reach 5% by May 2023.

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Philadelphia Fed President Patrick Harker explained Thursday that he envisions an FFR well above 4% by the end of 2022. “After that, if necessary, we can tighten further, based on the data“, The Financial Times reports “But we must let the system work itself out. And we must also recognize that it will take time: Inflation is known to rise like a rocket and fall like a feather“, added Patrick Harker. The FT article also quotes Minneapolis Fed President Neel Kashkari speaking on a panel about raising the rate above 5%.

Kashkari stated:

If we don’t see progress in core inflation or underlying inflation, I don’t see why I would advocate stopping at 4.5 percent, or 4.75 percent or something like that. We need to see real progress in core inflation and service inflation and we’re not seeing it yet.

Analyst suspects Fed reversal by December

Analyst and author Jed Graham says that while a 75 basis point hike is in the cards for November, a “Federal Reserve pivot is coming in December“, according to his premise. Another article by Jed Graham assumes that the Fed “will not pivot until the labor market shows signs of cracking – But once the labor market appears to turn, everything will change“. Jed Graham insists that while an overheated labor market allows the Fed to be more aggressive, “massive rate hikes will not be possible if the labor market has already run out of steam“.

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Graham’s article on the FFR outlook adds:

However, the outlook also depends on how financial markets fare between now and then. If the stock market rally continues and global bond and money markets move away from the brink, the Federal Reserve will tend to have more flexibility to continue its hikes. The combination of market distress and a weakening labor market could force the Fed to a quarter-point hike in December, and it could be the last.

Since the Fed’s onslaught of interest rate hikes, interest rates on various loans in America have followed suit. For example, a 30-year fixed rate on a U.S. mortgage is currently 7.896 percent, according to The Federal Reserve will meet on Wednesday, Nov. 2 to address the FFR and share the central bank’s economic plans.

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