CME FedWatch Provides A 66% Chance Fed Will Hike Rates In September
FOMC officials will likely increase the federal funds rate next month. (Photo by Chip Somodevilla/Getty Images)
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Federal Reserve officials will probably hike the target range for the benchmark federal funds rate by 25 basis points at their upcoming September meeting, according to recent figures provided by the highly visible CME FedWatch Tool.
Data provided at roughly 11:40 a.m. eastern time on Monday, August 31 showed a 66% likelihood that Federal Open Market Committee (FOMC) officials would increase the aforementioned range to between 375 and 400 bp.
Making such a move could have implications for a wide range of assets, including cryptocurrencies and stocks. Increasing the federal funds rate would place upward pressure on broader borrowing costs, increasing yields offered by fixed-income securities.
This could make risk assets like cryptocurrencies, which don’t pay yields, less appealing to investors relative to yield-bearing financial instruments.
The FOMC, and specifically its decisions regarding the federal funds rate, have been generating significant visibility for years. The members of this committee started raising the aforementioned rate in 2022, after inflation surged to multi-year highs.
Higher interest rates are supposed to contain this inflation, but they can do so at the expense of economic growth. At the recent Jackson Hole symposium, Fed Chairman Kevin Warsh took a hawkish stance on inflation, emphasizing that the Personal Consumption Expenditures Index has been uncomfortably high lately.
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Describing recent figures as “concerning,” he noted that “The Fed’s preferred measure of inflation, the 12-month change in the PCE price index, stands at 3.7 percent, while the six-month change is 4.1 percent.”
“The comparable measures from the consumer price index (CPI) are also elevated, as are the core measures of both PCE and CPI inflation,” Warsh added.
“Inflation is running above our 2 percent target,” he stressed, “So the Fed’s predominant focus right now should be on prices.”
This could set the Fed up for rate hikes in the near future. In fact, Barclays recently predicted that the central bank will increase the fed funds rate twice this year, once in September and once in December, according to Reuters. Such a development would raise the target range by 50 bp above its current level.