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Futures Expect 100 Points..Fed May Surprise Markets with “Dangerous Signs” By Investing.com

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Investing.com – With monetary policymakers in Washington heading toward approval of a straight hike today, there are important questions about whether efforts can succeed without disrupting the economy and falling into a recession.

With Federal Reserve Chairman Jerome Powell talking about the pain of the economy in his Jackson Hole speech in August, investors are preparing for an upbeat message today.

Today, investors are looking at how hawkish the Fed can be.. According to market experts, there are some signs that Fed watchers are paying close attention.

Percentage of increase

Michael Gregory, deputy chief economist at BMO Capital Markets, believes the Fed will raise the federal funds rate by 75 basis points to a range of 3% to 3.25%.

“Huge gains in core CPI inflation in August sealed the deal for a 75 basis point move and boosted the odds for a 100 basis point move,” he said.

Tim Doe, chief US economist at SGH Macro Advisors, said: “Fed fund futures markets and some analysts have identified the potential for a 100 point rally.

global context

But some institutions, such as Japanese investment bank Nomura, are sticking to expectations of a move of 100 basis points.

Whereas, prior to the sudden rise in core consumer inflation in August, economists believed that the Fed would cut its tightening in November and head for a hike of only a quarter of a percentage point.

Now Powell may leave the door open for a fourth move of 75 basis points on November 1-2, according to Japanese investment bank Nomura.

“Any pessimistic impression is likely to be the result of a misunderstanding,” said Roberto Burley, head of global policy at Piper Sandler. “Powell will be tough again at the press conference.”

“Increases of comparable size” should be on the table for the Fed to see inflation coming down in a steady, meaningful and lasting way, Fed Governor Michelle Bowman said.

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point diagram

Economists believe the Fed will use the point chart to indicate a “higher, longer” path for interest rates, according to Tim Doe, chief US economist at SGH Macro Advisors.

Krishna Guha, vice president of Evercore ISI, believes the Fed will raise the average target for the benchmark rate to a range of 4% – 4.25% by the end of the year, which is higher than the range of 3.25% – 3.5% in its previous forecast in June.

Guha believes that the “final” rate – or the high point of interest rate hikes in this cycle – will be revised to a range of 4.25%-4.5% from the previous estimate of 3.75%-4%.

At the same time, the dot chart will also show that the Fed has no intention of cutting interest rates next year.

“What the Fed is trying to do is feel the way to where they can rein in the economy without actually causing a full recession,” said Seth Carpenter, chief global economist at Morgan Stanley (NYSE).

Once they reach the level they think is starting to dampen demand, but not to the point that things are falling apart, Fed officials intend to stay there as the economy slows according to Seth Carpenter, chief global economist at Morgan Stanley.

the extent of the “pain”

Priya Misra, head of global price strategy at TD Securities, expects the Fed to take a less optimistic view of production and labor market conditions to provide “evidence” that the Fed is willing to accept some pain in economic conditions in order to roll back.

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In its latest forecast, the Fed predicted that the unemployment rate would rise to just 4.1% by 2024. The economy will continue to grow at an annual rate of just under 2% over the three projected years.

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