The Fed is likely to hike rates by 75 basis points in December and then pause, says Ed Yardeni. Yardeni believes the Fed wants to front-load rate hikes as inflation is still a problem in the US. He added that the Fed will raise rates into restrictive territory to see how it impacts inflation. Loading Something is loading.
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The Federal Reserve could hint it will hike interest rates by 75 basis points in December and then pause to see what happens, according to Ed Yardeni of Yardeni Research.
In an interview with CNBC 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 tame red-hot inflation running through the US economy.
The market veteran thinks the Fed is likely to stay hawkish until the end of the year, and that Fed Chair Jerome Powell will signal that in his closing statement.
“He still has an inflation problem. There’s been some signs of a peak in inflation, but nothing definitive showing that they’re making a great deal of progress in bringing inflation down,” Yardeni said.
“So I think he’s going to indicate there’s going to be another 75 basis point increase in December,” after the Fed hikes rates on Wednesday, he added.
“But he might hint after that, that the Fed’s fund rate is in restrictive territory now and that they’re just going to keep it there for a while and see how it impacts the economy,” Yardeni said.
The Fed is aggressively lifting interest rates as inflation, which came in at 8.2% through September, is proving stickier than anticipated. Bringing interest rates into restrictive territory means they reach a level that curbs the economy.
The US central bank has brought in three consecutive rate hikes of 75 basis points this year, bringing the Fed funds rate from near zero to a current range of 3% to 3.25%. If it hikes rates by 75 basis points today and introduces another jumbo hike in December, that would lift the benchmark rate to the Fed’s projected peak of 4.50%-4.75%.
“I think they want to front load the hikes. I don’t think they want to do 50 and then another 25 and then another 25. In other words, I think they want to get to restrictive and keep it there for a while,” Yardeni said.