Hike rates

Fed could hike rates 75bps in December, then take a break: Yardeni

  • The Fed is likely to raise rates by 75 basis points in December and then pause, says Ed Yardeni.
  • Yardeni thinks the Fed wants to anticipate rate hikes because inflation is still a problem in the United States.
  • He added that the Fed will raise rates into restrictive territory to see how that will affect inflation.

The Federal Reserve could hint that it will raise interest rates by 75 basis points in December, then pause to see what happens, according to Ed Yardeni of Yardeni Research.

In an interview with CNBC On Wednesday, Yardeni spoke ahead of the conclusion of the Fed’s monthly meeting today, where markets expect the central bank to hike rates by 75 basis points in a bid to rein in searing inflation running through the American economy.

The market veteran thinks the Fed is likely to remain hawkish through the end of the year, and Fed Chairman Jerome Powell will point that out in his closing statement.

“It still has an inflation problem. There have been signs of inflation peaking, but nothing definitive that they are making much progress in bringing inflation down,” Yardeni said.

“So I think he’s going to indicate there will be another 75 basis point hike in December,” after the Fed’s rate hike on Wednesday, he added.

“But he might suggest after that that the Fed funds rate is now in restrictive territory and they’re just going to hold it there for a while and see how that affects the economy,” Yardeni said.

The Fed is aggressively raising interest rates as inflation, which has hit 8.2% until September, turns out to be stickier than expected. Taking interest rates into restrictive territory means that they reach a level that is dragging the economy down.

The U.S. central bank has made three consecutive rate hikes of 75 basis points this year, raising the federal funds rate from near zero to a current range of 3% to 3.25%. If it raises rates by 75 basis points today and introduces another big hike in December, that would take the Fed’s forecast peak benchmark rate from 4.50% to 4.75%.

“I think they want to preempt the hikes. I don’t think they want to do 50, then another 25, then another 25. In other words, I think they want to get restrictive and stay there for a some time,” Yardeni said.