US Fed rate hike bets rise to 90%... Wall Street IBs also join rate hike outlook

US Fed rate hike bets rise to 90%... Wall Street IBs also join rate hike outlook

Turning to tightening after 3 years and 2 months... Two rate hikes expected within the year

The possibility of the US Federal Reserve (Fed) raising interest rates again after about three years is increasing.

As inflation pressure in the US rises again, market bets on a rate hike have exceeded 90%, and major Wall Street investment banks (IBs) have successively shifted to an outlook of rate hikes.

According to CME FedWatch on the 14th (local time), the probability of the Fed raising the benchmark interest rate by 0.25 percentage points at the Federal Open Market Committee (FOMC) on the 15th-16th rose to 90.3% at one point on the morning of that day in the interest rate futures market.

This is a significant increase from approximately 70% before the recent inflation data was released.

The probability of the benchmark interest rate being higher than the current level by December was 98.2%.

If the Fed raises the benchmark interest rate by 0.25 percentage points at this meeting, the target range for the policy rate will increase from the current 3.50-3.75% to 3.75-4.00%.

If the Fed raises interest rates, it will be the first rate hike in 3 years and 2 months since July 2023, breaking away from the freeze that followed three consecutive rate cuts in the second half of last year and returning to a tightening stance.

As the possibility of further Fed tightening emerged, US Treasury yields also jumped.

On this day, the US 10-year Treasury yield rose to 5.012% during trading, exceeding 5% for the first time since October 2023.

The market outlook has sharply shifted to a hawkish (preferring monetary tightening) stance due to stronger-than-expected inflation data recently released, coupled with concerns about a resurgence of inflation as international oil prices soared well over $100 per barrel in the aftermath of armed conflicts in the Middle East.

US consumer prices for August, which garnered attention as the last inflation indicator just before last week's Fed FOMC, still showed a high level.

August CPI rose 3.4% year-over-year, and core CPI, excluding energy and food, increased by 2.4%.

Major Wall Street IBs have also successively joined the rate hike outlook.

Goldman Sachs, JPMorgan, and HSBC all predicted that the Fed would raise the benchmark interest rate by 0.25 percentage points at this FOMC.

Ryan Wang, an economist at HSBC, predicted a September rate hike, stating, "The lack of progress in disinflation ultimately tilted the balance."

JPMorgan also predicted that after this week's rate hike, an additional hike would occur this year, citing doubts raised about whether inflation would continue to slow based on recent inflation data.

However, while Goldman Sachs anticipated a rate hike this week, it presented a different perspective on the subsequent rate path.

Goldman Sachs maintained its forecast for two rate cuts in 2027 but expected the timing of the cuts to be later than previously anticipated.

Furthermore, it assessed that the expected rate hike this week was more influenced by financial markets already largely pricing in the possibility of a rate hike, rather than by underlying inflation trends.