Economists' Expectations See Dramatic Reversal: 85% Anticipate a 25 Basis Point Rate Hike by the Fed This Week

BlockBeats news, September 14 - A latest Reuters survey shows that after the release of strong inflation data, economists' expectations for the Federal Reserve's policy path have undergone a sharp reversal. Of 101 surveyed economists, 86 expect the Fed to raise rates by 25 basis points at its September 15-16 meeting, lifting the federal funds rate target range to 3.75% to 4.00%, which would be the Fed's first rate hike since July 2023. Last week, more than two-thirds of respondents still expected rates to remain unchanged this week.

Tightening expectations have also begun to extend into next year. Of 70 economists, 37 expect the Fed to raise rates at least once more before the end of March 2027, while last week the mainstream expectation at that corresponding proportion was still for rates to remain stable. Interest rate futures markets currently price in nearly a 90% probability of a rate hike this week and are betting on about 4 cumulative rate hikes by the end of July 2027.

Renewed inflation is the core reason for the shift in expectations. CPI, PPI and other data have all come in strong, and economists expect core PCE in August may accelerate again, while Middle East conflict pushing oil prices above $100 per barrel has further increased inflationary pressure. Bank of America economist Stephen Juneau said that at present, "we simply are not seeing weak data," and the strong inflation report has further weakened the case for the Fed not to raise rates.

At the same time, the 10-year U.S. Treasury yield continues to approach 5%, and long-end rate pressure is further testing the Fed's anti-inflation credibility. BMO chief U.S. economist Scott Anderson warned that if the Fed still stays put this week, it could lead to further steepening of the U.S. Treasury yield curve.