Mariner S in Washington, DC. Eccles Federal Reserve Board Building
Sarah Silbiger | reuters
Markets are almost certain that next month the Federal Reserve will take another step down in the pace of its interest rate hikes.
Pricing on Wednesday morning pointed to a 94.3% chance of a 0.25 percent hike at the central bank’s two-day meeting, which ends on February 1. cme group data, If this happens, it would move the Fed’s benchmark lending rate to its target range of 4.5%-4.75%.
Though the outlook has changed little since last weekend, economic data wednesday helped solidify the idea that after a succession of aggressive hikes — four consecutive three-quarter point increases in 2022, at one point — the Fed is ready to take its foot off the brake a little more.
producer price Index while fell 0.5% in December Retail Sales 1.1% were closed. Both indicate that Fed hikes are driving down inflation and slowing consumer demand.
“We are changing our call for the February 50 FOMC meeting [basis point] Although we think markets should continue to take some chances on a sizable hike, we see a 25 bp hike, Citigroup economist Andrew Hollenhorst wrote in a client note.
“Soft PPI will be associated with slow consumer price And wage inflation likely pushes the Fed toward a 25 bp wage hike,” he said.
One basis point is 0.01 percentage point.
St. Louis Fed President James Bullard said Wednesday morning that he would prefer that policymakers stick to a more accommodative path.
rate-setting Federal Open Market Committee, where Bullard is a nonvoter this year, 0.5 percentage point hike approved After a succession of 0.75-point moves in December.
“Why not go where we’re supposed to go, where we think the policy rate should be for the current situation?” Bullard said during a roundtable hosted by The Wall Street Journal. “Then, once you get there, you can say, ‘Okay, now we’re just going to react to the data.’
However, Patrick Harker, president of the Philadelphia Fed, said last week that he favors a recession.
“I expect we’ll raise rates a few more times this year, although, in my mind, the days of raising them 75 basis points at a time are definitely passed,” FOMC voter Harker said Thursday. “In my view, an increase of 25 basis points would be appropriate going forward.”
Traders in the fed funds futures market expect the central bank to raise rates to 4.75%-5% by mid-summer, then bring it down half a percentage point by the end of the year.
However, Fed officials estimated in December that they see rates hitting 5% this year and leaving no chance of a cut until at least 2024.