Citadel Securities now expects the Federal Reserve to raise interest rates at its Wednesday meeting, a shift that adds to market anxiety as new Chair Kevin Warsh moves away from forward guidance. Frank Flight, head of macro strategy at Citadel Securities, changed his base case to a hike, saying it would emphatically end the forward-guidance era and underscore the Fed’s independence. Swap-market pricing implies about a one-in-three chance of a 25-basis-point increase, while PGIM’s Robert Tipp says the market is underestimating the probability of a move. Open interest in August federal funds futures hit a record 967,136 contracts, reflecting heavy hedging against a surprise. Other voices, including Wrightson ICAP’s Lou Crandall and bond veteran Harley Bassman, have also called for a hike, with Bassman urging a half-point move to establish credibility and resist political pressure.
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