As global markets bleed, JPMorgan’s economist expect the Fed to raise the benchmark rate by 75 bps
The Federal Reserve of the United States is likely to raise the federal funds rate at its next meeting on Wednesday, according to JPMorgan economist Michael Feroli, who believes that growing inflation would force the Fed to hike the rate by 75 basis points (bps). According to CME Group statistics released last week, the market has priced in a 95 percent possibility of a 50 basis point rate rise in the United States this month. While some anticipate a hawkish Fed, others predict the central bank would respond pacifically if markets deteriorate.
The day was one of the bloodiest openings to the week in a long time, with major U.S. stock indices and cryptocurrency markets dropping considerably. According to S&P Dow Jones Indices, the "S&P 500 is currently in a genuine bear market," according to a local media reporter.
Precious metals such as gold and silver have also lost value, with gold's price per ounce falling 2.67 percent and silver's price falling 3.58 percent. On Monday, the whole crypto-economy lost 18 percent of its value, and BTC fell below $21,000. At the moment, all eyes are on the Federal Open Market Committee (FOMC) meeting, which is likely to raise the federal funds rate.
Increases of 25 to 50 basis points are considered moderate. The Fed might raise rates by 75 to 100 basis points at its next meeting, with some analysts forecasting 75 basis points. According to CME Group statistics released last week, the market has priced in a 95% likelihood that the Fed would raise the benchmark rate by 50 basis points. However, JPMorgan economist Michael Feroli believes a 75-basis-point hike is on the way, with a 100-basis-point hike still feasible.
In a note to investors on Monday, Feroli predicted that the Fed will raise the rate by 75 basis points on Wednesday due to a "startling jump in longer-term inflation expectations." "One would question if the genuine surprise would be a hike of 100 basis points, which we believe is a non-trivial risk," Feroli added.
Goldman Sachs economists concur with Feroli, predicting a 75 basis point rate rise at the FOMC meeting. On Monday, Goldman analysts said that "our Fed projection is being updated to include 75 basis point rises in June and July."
The memo to investors from Goldman Sachs analysts adds:
Two further rate hikes to 3.75-4 percent are expected in 2023, followed by one rate decrease to 3.5-3.75 percent in 2024. We expect a 50-basis-point hike in September, followed by 25-basis-point increases in November and December, for a 3.25-3.5 percent terminal rate. By the end of 2022, we predict the median dot to be 3.25-3.5 percent.
Meanwhile, despite Feroli's projection of 75 basis points, JPMorgan's Marko Kolanovic told the media that the United States will most likely escape a recession. Due to the turmoil in bond and stock markets, the Fed may act dovish in the future, according to a JPMorgan Chase & Co. strategist.
"Friday's robust CPI report, which resulted in a spike in yields, as well as the crypto sell-off over the weekend, are impacting on investor confidence and dragging the market lower," Kolanovic said in a note to investors on Monday. However, we believe the rate market repricing went too far, and the Fed will surprise the market by being more dovish than what is now priced into the curve, according to the JPMorgan analyst.