Investors think the odds of a 75-basis-point rate hike at the December Fed meeting have doubled after the September inflation report
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- Investors pushed up expectations that the Federal Reserve at its December meeting will deliver another rate hike of 75 basis points.
- The odds for another three-quarter point increase jumped to 61.8% from 32.5% a day ago.
- The move came after September core inflation rose to 6.6%, which marked a 40-year high.
US core inflation in September rose by more than economists had anticipated, spurring investors on Thursday to bump up their expectations that the Federal Reserve at its December meeting will deliver yet another big rate hike.
The CME FedWatch tool showed a 61.8% probability of a rate increase of 75 basis points at the central bank's December 13-14 meeting, up from 32.5% a day earlier.
At the same time, the odds of a rate increase of 50 basis points fell to 36.9% from 58% a day prior. The probability of a 100-basis-point rate hike edged up to 1.4% from 0% over the past month.
The inflation report also cemented expectations for the Fed to raise its benchmark rate by 75 basis points at its November 1-2 meeting. If predictions for the next two Fed meetings hold, they would extend the streak of jumbo-sized increases. The Fed last month delivered its fifth rate hike of 2022 and a third straight rate increase of 75 basis points.
The moves came after the Bureau of Labor Statistics said the core Consumer Price Index — which measures inflation excluding volatile food and energy prices — rose 6.6% in the year through September, the fastest price growth since 1982.
The reading outstripped expectations of 6.5% among economists polled by Bloomberg. Shelter prices fronted the gain by rising 0.7% through the month. The headline inflation rate dipped to an annual pace of 8.2% from 8.3% in August as gas and food prices have been easing. But the acceleration in core inflation pointed to a worrying trend.
"This is the Fed's nightmare scenario: the risk that inflation stays entrenched because services inflation is far harder to bring down than energy inflation," wrote Jan Szilagyi, CEO of investment research firm Toggle AI. "The Fed will see this as a license to stay aggressive while the labor markets remain strong and the public tolerates rate hikes. More than that, they will maintain a hawkish message to avoid perception that they are tip-toeing around the issue."
US stocks dropped after the inflation report, pushing the S&P 500 down by more than 1% and the Nasdaq Composite lower by 2%. Meanwhile, the US Dollar Index rose about 0.4%.
"The CPI report was a stark reminder that the Fed has a lot of work to do still. For every category that seemed to improve, two worsened," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management, in a note. "The coming earnings season would have to be doubly strong to offset the strong headwinds of will be an ever-aggressive Fed."
Contributer : Business Insider https://ift.tt/HEWN52I
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Friday, October 14, 2022
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