Market expects Fed to raise rates tonight for first time in 3 years, to 3.75-4%

MacroDigital Finance Impact 4
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Summary · why it matters

Wall Street stock markets expect the US central bank to raise its policy interest rate at tonight's meeting to address inflation that remains above the 2% target. The CME Group's FedWatch Tool indicates that investors assign a 92.7% probability to the Fed raising rates by 0.25% to a range of 3.75-4%, and a 7.3% probability to holding rates steady. If this plays out as expected, it will be the first rate hike since July 2023, after which the Fed cut rates 6 times for a total of 1.75%. A month ago, investors assigned only a 36% probability that the Fed would raise rates at the September 16 meeting, but expectations shifted after Fed Chair Kevin Warsh signaled a tightening stance at the Jackson Hole meeting, alongside disappointing inflation data, a stronger labor market, and crude oil prices surging above 100 dollars per barrel. Meanwhile, Morgan Stanley economists revised their forecast from previously expecting no rate hike this year to expecting 2 hikes, one on September 16 and another in December. Michael Gapen, Morgan Stanley's chief economist, stated that inflation is still not slowing fast enough to give the Fed confidence that inflation will return to 2% within an appropriate timeframe.

Impact on stocks 4

Carbon Removal (DAC)▲ · 1 stocks
CME Group Inc
CME
▲ PositiveDemandrelevance

CME Group's FedWatch Tool is cited as the market gauge showing a 92.7% probability of a Fed rate hike, boosting demand for its rate-futures/derivatives products.

Financials▲ · 1 stocks
Morgan Stanley
MS
± MixedCapitalrelevance

Morgan Stanley economists revised their forecast to expect two rate hikes (September and December), an analyst forecast change rather than a clear directional driver for the firm.

Others▲ · 2 stocks
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