Following the recent U.S. Consumer Price Index report that showed inflation in America hit a 40-year high, many expect the Federal Reserve to raise the rate of inflation. benchmark interest from 75 to 100 basis points (bps) on July 26. Blackstone’s Private Wealth Solutions expects the Fed to raise the rate by 75 basis points and bankrate.com thinks a three-quarter rate hike is also in the cards.
All eyes on the Fed’s next move – Market strategists predict interest rate hikes of 75-100 basis points next week
Next week, in about six days, the US central bank will meet again to review and change the federal funds rate. The Federal Reserve has been raising the benchmark rate since mid-March 2022. At that time in March, the central bank increase the benchmark interest rate from near zero to 0.25% for the first time since 2018. After that, US inflation continued to rise and JPMorgan economists predicted the central bank would raise the rate by 75 basis points in June.
The rate hike forecast materialized when the US central bank raised the federal funds rate by 75 basis points on June 15, 2022. America had not seen a 75 basis point jump since 1994, when Alan Greenspan was the 13th chairman of the Federal Reserve. At the time, the country was led by Democratic President Bill Clinton and inflation was quite low at 2.7%. However, many observers at the time said Greenspan was often hawkish and stock indices became volatile.
Prior to Greenspan’s infamous 75 basis point rate hike, tech giant Cisco Systems saw a 16% decline in value and dropped 54% through October 1994. Applied Materials shares suffered a 30% correction and EMC recorded a similar decline. Goldman Sachs investment strategist Abby Cohen Noted that nearly 40% of all active stocks have fallen more than 30% from highs reached in 1994. Greenspan began to tighten monetary policy and Standard & Poor’s investment strategist Arnold Kaufman told the time that the US economy would rebound in 1995.
“We don’t see this as a bear market,” Kaufman explained that year. “The difference is that we buy the concept of ‘soft landing’ [for the economy]while others are not.
Kaufman was right, as the U.S. economy recovered and stock indexes were less volatile and began to rise steadily in 1995. More than 27 years later, the 16th Federal Reserve Chairman Jerome Powell appears to be in hawkish fashion since the first rate hike in March. As inflation continues to print perpetual highs, Powell think that current price pressures will dissipate quickly, and the central bank chairman believes the Fed can tame the hot inflation.
Blackstone and Bankrate.com Pencil in 75 bps rate hike, others expect 100 bps jump
Currently, the chief investment strategist of Blackstone’s Private Wealth Solutions group, Joseph Zidle, estimates that a 75 basis point rate hike will take place next week. “My view is that the fed funds rate could go over 4%. I think they could go over 4.5%, maybe even closer to 5%,” Zidle Told Bloomberg during an interview. In addition to Blackstone’s guess, bankrate.com is also to predict an increase of 75 basis points at the next Fed meeting. Bankrate.com says U.S. central bank policymakers “show no signs of stopping.” The financial bank rate comparison website added:
New forecasts also released with the June decision show projections for a federal funds rate of 3.25-3.5% by the end of 2022, the highest since 2008.
Meanwhile, there are also plenty of higher forecasts as some believe a 100bps increase could very well happen. “With inflation so high, the Fed’s next rate hike could be the biggest in decades,” said a report published by Barron’s notes and details, the next rate hike could be 1%. Also, other sources from the likes of SCSand CNBCindicate that a 100 basis point increase will be announced next Wednesday at the monthly meeting of the Federal Open Market Committee (FOMC).
What do you think the Fed will do at the next FOMC meeting? Do you expect an increase of 75 or 100 basis points next week? Let us know your thoughts on this in the comments section below.
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