September Fed Meeting Expected To Deliver 75bps Hike

The Federal Reserve will meet to set interest rates on September 20-21, announcing a decision on September 21. A 75bps rate hike is expected according to interest rate futures.

However, the risks have shifted slightly, prior to the disappointing CPI report for the month of August where prices for many items such as food rose more than many hoped, markets saw some chance of a smaller 50bps hike. Now, perceptions have shifted and the markets see a small possibility (about a 1 in 5 chance currently) of a very large 100bps move up in rates. However, 75bps remains the expected outcome.

Rate Decision Announcement

The actual rate announcement is expected at 2pm EDT on Wednesday September 21. This is a meeting where, in addition to a press conference, the Fed will share policy-makers’ economic projections called the “Summary of Economic Projections”. As part of a package of economic forecasts, this will provide some insight into the level of interest rate for year-end 2022 and beyond as well as where the Fed sees inflation trending.

What To Watch For

The Fed has used various recent statements from key policy-makers to stress the dangers of inflation and stopping rate hikes too early, such as Jerome Powell’s recent hawkish Jackson Hole Speech. The Fed expects to continue to raise rates beyond the September meeting and make sure inflation is under control.

The market is not quite so sure, and believes the the Fed could be finished fighting inflation by the end of this calendar year. That may be because the U.S. economy sees a recession in 2023 or earlier, and the Fed loses its nerve, or because inflation really does start to moderate as we enter the end of 2022.

The Decision

The Fed’s decision itself will be important. Is there consensus for a 75bps move, if that occurs, or is there some dissent voting for a different rate move? The summary of economic projections too, will provide hint on future rate decisions. The markets currently see Fed rates ending calendar 2022 at around 4%-4.5%, implying perhaps smaller rate increases than we’ve seen recently at the year’s final two scheduled meetings. It will be interesting to see if the Fed takes a different view to what markets anticipate.

The 2023 Question

Finally, markets will be looking for clues about the direction for rates in 2023. Of course, given data dependence, the Fed may not know either. Still the market expects the Fed to hold rates close to the 4.5% level for much of 2023 and sees a much less dramatic path for rates than we’ve seen so far in 2022. Of course, if that changes, then markets could shift dramatically too.