On Tuesday, investors priced in expectations of a big. 100 basis point rate hike at the next Federal Reserve monetary policy meeting after August inflation numbers beat expectations.
The CME FedWatch tool showed a 20 percent chance of a 100-point rate hike at the Sept. 20-21 session, after showing no chance for the past month. Meanwhile, the probability of a 75 basis point rate hike fell to 84% from last May ‘9 and investors eliminated
the probability of a 50 basis point hike 9% rate hike on Monday.
US inflation showed some signs of slowing in August, but numbers in the government report largely beat expectations. Among them, the consumer price index rose by 8,3% in the year to August. Economists expected 8.1%. “Stubborn inflationary pressures will likely force the Fed to ramp up the pressure on its tightening campaign. exposing the broader economy to a greater risk of a material recession/recession within the next year.“ said Jason Pride, director of private equity investments a note at Gleneden. “Market expectations have changed accordingly… with the potential for a 100 basis point rate hike next Wednesday. “ U.S. stocks slumped after inflation data was released.
The Nasdaq Composite fell more than 4% during the session the S&P 500 fell more than 3% and. the Dow Jones Industrial Average fell nearly 3% in the 10th -year. Treasury yield rose 10 basis points to 3.43% and the 2-year yield rose 15 basis points to 3.73%. The Federal Reserve hiked interest rates by a whopping 75 basis points at its previous two meetings. June’s rise was the first of a three-quarters percentage point. since 1994.
Policymakers have raised the fed funds rate four times this year, bringing it to a range of 2.00.25%-2.5%. Pride said the underlying details of the August report suggest inflation could be looking increasingly stubborn, particularly with rental components and owner-equivalent rent up 0.7% for the month. Decade highs put policymakers a long way from the central bank’s 2% inflation target.“We continue to expect a 75 basis point rate hike in September and an overnight rate of 4.0 to 4.25 next year,” Bank of America said in a note following the release of the Inflation Report. Core inflation readings, in our view, point to further monetary tightening and the risk of a hard landing.”
Month-on-month, CPI rose 0.1%, beating expectations for a 0.1% decline. Core CPI inflation, which excludes volatile food and energy prices, rose 6.3%, ahead of the median forecast of 6,1%. The headline rate of 8.3% was lower than the July figure of 8.5%. Much of the slowdown in August was due to a drop in gasoline prices. The gasoline price index fell by 10.6%.