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Traders Predict 1% Interest Rate Hike by Fed

At its meeting on July 26–27, the Federal Reserve is expected to increase its target Fed Funds Rate by one percentage point, according to traders.

Market expectations started to rise following June’s extremely high consumer price index, and they increased even further after the Bank of Canada lifted its interest rate by one percent.

Investors will be looking for additional hints on what the Fed might do on Thursday in the remarks made by Fed Governor Christopher Wallert.

The Federal Reserve could hike interest rates by as much as a percentage point later this month. 

After June’s extremely hot consumer inflation report, futures traders quickly began to wager.

The consumer price index recorded its highest monthly reading since November 1981 on Wednesday morning, up 9.1% year over year. 

The report instantly sparked market speculation that the Fed might adopt a harder stance and that doing so would increase the likelihood of a recession.

After the Federal Reserve’s interest rates were predicted to increase by as much as a full percentage point later this month, futures traders quickly started to speculate after June’s extremely hot consumer inflation report.

According to data released on Wednesday morning, the consumer price index increased 9.1% year over year, making it the highest monthly reading since November 1981. 

The market instantly began to speculate that the Fed might start acting more forcefully and that doing so would increase the likelihood that a recession would result from those moves.

Following June’s extremely hot consumer inflation report, futures traders quickly started to speculate that the Federal Reserve would hike interest rates by as much as a full percentage point later this month.

According to data released on Wednesday morning, the consumer price index increased 9.1% year over year.

This is the highest monthly figure for the indicator since November 1981. 

The data instantly sparked market speculation that the Fed may adopt a harder stance and increase the likelihood of a recession as a result.

Brenner claimed that remarks made by Raphael Bostic, president of the Atlanta Fed, on Wednesday afternoon also raised anticipations. 

Bostic claimed that everything is “in play” and that the hot June CPI number was alarming. 

Currently, traders are focusing on every inflation statistic as well as the remarks of Fed members. 

The producer pricing index is announced on Thursday at 8:30 a.m. ET, and is predicted to increase by 0.8 percent. In addition, at 11 a.m. ET, or two and a half hours later, Fed Governor Christopher Waller speaks.

The market is currently pricing in a fed funds rate of 2.51% in July, according to rate expert Ben Jeffery, but October futures also indicated a larger increase in September. 

By October, the fed funds rate for the September contract was set at 3.23 percent.

He explained, “That’s an extra 75 basis points.”

Before their meeting on July 26, Jeffery predicted that Fed officials would go into a period of relative silence. 

Friday morning’s symposium on the European economy will feature remarks by St. Louis Fed President James Bullard and Bostic on monetary policy.

He said there is undoubtedly a chance that a committee member may make an unplanned comment.

Strategists observed that the 10-year Treasury yield originally increased in response to the CPI news but then decreased due to worries about a recession. In opposition to price, yields move.

The Fed must take more active action as a result of the increasing inflation. 

According to Brenner, the Fed’s aggressive behavior increases the likelihood of a recession, which reduces interest rates.

After reaching a high of 3.07 percent late on Wednesday, the 10-year rate was 2.91 percent.

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Author

  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.