The chances of the Fed holding benchmark interest rates steady are rapidly fading. Data from the CME FedWatch tool shows the probability of a 25-basis-point hike surging to 94.5%. This probability jump appears drastic compared to just a month ago, when it hovered below 50%. If the monetary tightening move is delivered at Wednesday’s Federal Open Market Committee (FOMC) meeting, markets will witness their first rate hike since 2023.
A Wall Street Journal survey confirmed the direction of market sentiment. Most leading investment banks predict the central bank will raise interest rates this week. While consensus on the initial move appears solid, major institutions are split into two camps when forecasting the path of tightening through year-end.
Wall Street Split Between 50 and 75 Basis Points
The first camp includes a cohort of five major banks. Barclays, Citigroup, JPMorgan, Morgan Stanley, and UBS all project a total of 50 bps in monetary tightening through late 2026. The 50 bps estimate reflects the view that the central bank will take a measured approach in responding to economic dynamics.
A more hawkish stance is voiced by three other banking giants. Bank of America, Deutsche Bank, and RBC take the position that total tightening will reach 75 bps this year. The 25 bps divergence between the camps reflects differing analyses of macroeconomic data trends.
Core Inflation and the Iran Geopolitical Factor
The root of this divergent outlook stems from stubborn price pressures. August Consumer Price Index (CPI) data held at 3.4%, while the core CPI component stood at 2.5%. Both inflation metrics remain above the Fed’s 2% target.
Domestic conditions are further complicated by external pressures. A spike in oil prices triggered by geopolitical tensions surrounding Iran adds its own inflationary burden. The twin pressures of soaring energy costs and sticky core inflation are forcing policymakers to reinforce their tightening stance.
This Week’s Hike Is Just the Beginning
Jerome Powell’s decision on Wednesday is almost certain to deliver a 25 bps rate hike. For crypto and equity holders alike, the real suspense lies in forward guidance on the trajectory of future tightening. The outcome of the Wall Street debate - whether tightening stops at 50 bps or continues draining liquidity toward 75 bps - will determine the cost of capital in markets through year-end.
Reported by Decrypt.
Previously: Odds of Fed Rate Hike Top 92%, Bitcoin Slides Below $76,000 Alongside Wall Street
Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
