The FOMC (Federal Open Market Committee) will announce if it is deciding to raise the federal funds rate Wednesday, July 27 with an announcement at 2 p.m. ET. Here’s a look at what major analysts are expecting the rate hike to look like.
The FOMC Meeting: The FOMC holds eight scheduled meetings during the year and holds other meetings as needed.
The Federal Open Market Committee is the Fed’s operating body for monetary policy for the United States.
The FOMC sets a target rate for the fed funds rate at its meetings. The Federal Reserve Board of Governors sets the discount rate and reserve requirement.
Analysts Expectations: Here is a look at the current rate hike expectations from major financial institutions, as shared by Unusual Whales.
- Nomura: 100 bps (+1.00%)
- Citigroup: 75 bps (+0.75%)
- Morgan Stanley: 75 bps
- Credit Suisse: 75 bps
- Wells Fargo: 75 bps
- Bank of America: 75 bps
- JPMorgan: 75 bps
Related Link: July Fed Meeting Preview: The Federal Reserve Could Tighten More Than Expected Due To Economic Uncertainty
Why It’s Important: The consensus suggests a rate hike of 75 basis points to the federal funds rate. A 100 basis point rate hike would mark the largest interest rate hike in more than 30 years. Earlier this month, Bank of America economist Michael Gapen said inflation and labor market data showed the U.S. economy is overheating.
The bond market has been pricing in a 50/50 chance the Fed will raise rates by 100 basis points, as Benzinga reported earlier this month. Cornerstone Wealth chief investment officer Cliff Hodge argued the Fed has no choice but to remain aggressive given the increasing odds of a recession for the U.S.
The Federal Reserve voted in June to raise the rate by 75 basis points, with all 11 voting members supporting a decision to raise interest rates. Only one member voted for a 50 basis point hike.
The 75 basis point hike in June marked the largest interest rate hike in 28 years.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the Fed said at the time.
While many are expecting a rate hike Wednesday, bond analyst David Rosenberg suggested the Fed could surprise investors and analysts by deciding to rely on data and abandon forward guidance.
“Watch the Fed abandon forward guidance and rate commitments and embrace data dependency,” Rosenberg said. “This cycle of hikes ends at 2pm tomorrow. Buy bonds.”
SPY Price Action: The SPDR S&P 500 ETF (NYSE:SPY) is up 1.3% to $396.03 on Wednesday and has traded between $362.17 and $479.98 over the last 52 weeks.
The SPDR S&P 500 ETF is up 4.1% since the close of June 15, when the Fed raised the rate by 0.75%.
Photo: Courtesy of International Monetary Fund on flickr