Hike rates

Fed to raise rates further after September inflation data

  • Barclays said on Thursday it now expects “more aggressive and earlier Fed hikes” after the September CPI.
  • He predicts the Fed will raise rates by 75 basis points in December and 50 basis points in February 2023.
  • It also sees the central bank starting to cut rates later next year.

The Federal Reserve could raise its benchmark interest rate beyond 5% in 2023, Barclays said on Thursday as September’s hotter-than-expected inflation report prompted it to change its projections for policy measures. central bank policies.

“We now expect more aggressive and earlier Fed hikes in upcoming meetings,” Jonathan Millar, senior economist at Barclays, said in a note.

Barclays now expects policymakers to raise the federal funds rate by 75 basis points in December, compared to previously forecasting a 50 basis point hike.

For the first meeting of 2023, Barclays forecasts a rate hike of 50 basis points, up from its past forecast of 25 basis points. He maintained his view that in November the Federal Open Market Committee led by Jerome Powell will raise the rate by three-quarters of a percentage point.

Together, this would propel the federal funds rate into a range of 5% to 5.25% in February. Barclays had previously forecast a range of 4.5% to 4.75%.

The Bureau of Labor Statistics said Thursday that the core consumer price index — a measure of inflation that excludes volatile food and energy prices — increased by 6.6% over the year to Septemberthe fastest price growth since 1982. Expectations were 6.5% among economists polled by Bloomberg.

“Surprises within basic services were broad-based, reflecting firmer impressions for both shelter component rent … and ex-shelter services down 0.9% month-on-month,” said Millar said. He noted that the owners’ equivalent rent and principal residence rent gauges each accelerated to 0.8% month-on-month.

“Consequently, the latest estimates show a broad-based acceleration in the services category, which is clearly inconsistent with the FOMC’s resolve to pursue aggressive increases until it sees ‘clear and convincing evidence’ of a sustained decline in inflationary pressures,” Millar said.

After the September inflation report, investors believe the odds of a 75 basis point rate hike at the December Fed meeting have doubled.

“With the FOMC’s retrospective reaction function heightening the risks of over-tightening, we now expect the FOMC to cut the funds rate by 75 basis points in the last three meetings of 2023,” Barclays said. Such moves would raise the federal funds target range to 4.25% to 4.5% by the end of next year, up from the investment bank’s earlier projection of 4% to 4.25%.

The Fed is set to make its fourth straight 75 basis point rate hike and sixth hike of 2022 on Nov. 1-2. The benchmark rate settled at 3%-3.25% after starting from zero This year.