Citadel Securities Assesses 37.9% Probability of Interest Rate Hike..."Hawkish Shift Underestimated"

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The possibility of a surprise interest rate hike by the U.S. Federal Reserve has surged to 37.9%. Citadel Securities warned that the market is still underestimating the Fed's hawkish shift.

According to crypto media outlet BeInCrypto on July 28 (local time), Citadel Securities projected that the Fed would raise the benchmark interest rate by 0.25 percentage points on the 29th. This analysis directly contradicts market expectations of a freeze.

Frank Flight, Head of Macro Strategy at Citadel Securities, stated, “The market may once again be underestimating the extent of the Fed’s hawkish shift.” He analyzed that raising interest rates in July, rather than waiting until September, could more strongly convey the will to stabilize prices.

Flight believed that an early hike could also influence corporate pricing decisions and workers' wage demands. He explained that proactively curbing inflation expectations could reduce the scale of future tightening needed. He emphasized that although employment and price indicators have somewhat slowed, inflation risks and labor market stability still support the outlook for interest rate hikes.

The probability of a 0.25 percentage point hike, reflected by the Chicago Mercantile Exchange (CME) FedWatch, jumped from 25.7% a week ago to 37.9%. Kalshi indicated a 28% chance of an interest rate hike, while Polymarket suggested 27.5%. Kalshi's trading volume exceeded $45 million, and Polymarket's July rate decision market trading volume surpassed $107 million.

Economists, however, leaned towards an interest rate freeze. A Reuters survey of 104 economic experts from July 17 to 21 showed that not a single respondent anticipated an interest rate adjustment at this meeting. The clash between Citadel Securities' hike forecast and the market's freeze expectation has heightened tension surrounding the Fed's July decision to its peak.

[Article Key Summary]

-The probability of a 0.25 percentage point interest rate hike by the Fed rose from 25.7% to 37.9% in one week.

-Citadel Securities predicted a July interest rate hike, stating that the market is underestimating the Fed's hawkish shift.

-All 104 economic experts surveyed expected an interest rate freeze, presenting a clear contrast with Citadel Securities' forecast.

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