Market Bracing For Another Three-Quarter Point Hike From The Fed This Month

• Traders are now seeing a near certainty that the Federal Reserve enacts its third consecutive 0.75 percentage point interest rate increase when it meets later this month. The probability of a three-quarter point hike moved to 82% on Wednesday morning, according to the CME Group’s FedWatch tracker of fed funds futures bets.
• That follows a series of positive economic data and statements from Fed officials indicating that tight policy is likely to persist well into the future. In a pivotal speech on August 26, Fed Chairman Jerome Powell warned that increases will proceed and higher rates likely will stay in place.
• Even as traders ramped up their bets on Fed tightening, stocks were higher shortly after the market opened. A Wall Street Journal report noting the likelihood of a 0.75 percentage point increase coincided with traders pricing in the more aggressive move, and stock futures momentarily slipped.
• “In June a 75 basis point rate hike from the Federal Reserve was seen as a surprising acceleration from the 50bp and 25bp delivered at the two previous meetings. Less than three months later, 75bp has become something of a global norm with both the European Central Bank and Bank of Canada set to raise rates by 75bp,” Citigroup economist Andrew Hollenhorst said in a client note Wednesday.
• “These ‘expeditious’ rate hikes come from a similar logic — in economies where inflation is running well above target, there is little argument against at least returning policy rates and financial conditions to a ‘neutral’ setting if not moving into restrictive territory,” he added.

(Source: CNBC)