Despite ongoing turmoil in the banking sector and lingering uncertainties, the Federal Reserve is expected to approve a quarter-percentage-point interest rate hike next week, according to market pricing and several Wall Street experts. Over the past two weeks, rate expectations have fluctuated significantly, ranging from a half-point hike to maintaining the current rate and even briefly discussing the possibility of a rate cut.
A consensus has emerged, however, indicating that Fed Chairman Jerome Powell and his fellow central bankers aim to signal their attentiveness to the financial sector’s upheaval while emphasizing the importance of continuing the fight against inflation. This stance is likely to result in a 0.25 percentage point (25 basis point) increase, accompanied by assurances that there is no predetermined path for future adjustments. Although the outlook may shift depending on market behavior in the coming days, current indications suggest the Fed will proceed with the rate hike.
Doug Roberts, founder and chief investment strategist at Channel Capital Research, believes that the Fed must take action to maintain credibility. While the 25 basis point increase sends a message, Roberts argues that the subsequent commentary from Powell will play a crucial role in shaping public perception. Roberts remains skeptical that Powell will make the drastic policy shift that many anticipate.
Market consensus largely aligns with the expectation that the Fed will implement a rate hike. As of Friday afternoon, CME Group data, based on Fed funds futures contracts, revealed a 75% probability of a quarter-point increase. The remaining 25% favored no hike, suggesting that policymakers might refrain from the aggressive tightening campaign initiated just over a year ago.
Goldman Sachs is among the most prominent forecasters anticipating no change in rates. The financial giant predicts that central bankers will generally adopt a more cautious short-term approach to avoid exacerbating market fears of further banking stress.