Economists at JP Morgan and Goldman Sachs said Monday in customer notes that they now expect the Federal Reserve to raise its policy rate by 75 basis points on Wednesday.
JP Morgan JPM,
Economist Michael Feroli noted the “surprising rise in long-term inflation expectations” in a report on consumer sentiment on Friday and a Wall Street Journal article on Monday suggesting that Fed officials are not they would see “constrained by their previous orientation” of 50 bases. -increase in points as reasons for its revised forecast.
On the WSJ article, Feroli also said that “one might wonder if the real surprise would be to raise 100 bp, which we believe is a non-trivial risk,” in a note from the client on Monday.
A rise of 100 basis points would increase the rate of fed funds by 1% from its current target range of 0.75% to 1%.
“Our Best Assumption,” Goldman GS
Economists wrote that “the article is a clue from Fed management that there will be a 75 bp rate hike at the June FOMC meeting on Wednesday,” in a note from the client on Monday.
For the most part, market participants expected a 50 basis point rise by the Fed this week. Since Friday’s inflation reading, however, stocks have fallen to the S&P 500 SPX.
at a bear market on Monday.
reads: The S&P 500 has just confirmed a bear market: what investors need to know
The unrest also took the 10-year-old TMUBMUSD10Y Treasury,
up 3.371% on Monday, its highest since April 2011, according to Dow Jones Market Data. Bond prices and yields are moving in opposite directions.
“The Fed needs to curb demand by reducing excess liquidity,” said Robert Pavlik, a senior portfolio manager at Dakota Wealth Management. While he noted that the central bank cannot control supply imbalances, it can control demand by raising interest rates, making it more expensive for households to spend on credit.
“That’s where my argument for a 1% rate hike comes in this week,” Pavlik said. “Just rip off the bandage and do it.”
Evercore ISI strategist Krishna Guha said the WSJ report “de facto has a 75 [basis point hike] this week “, but also that it is not” what we believe is an optimal policy “, nor” good for the markets “.
JP Morgan’s Feroli now sees the rate of terminal fed funds in a range of 3.25% to 3.50% early next year, while Goldman economists expect to see that range by the end of December.
On Friday, Barclays economists more quickly called for a 75-point rate hike, saying an aggressive move in June would provide the Fed with its “biggest perfect.”