Fed officials may raise interest rates by 75 basis points for the third consecutive meeting this week, hinting that they will raise interest rates above 4%, and then stand still.
There may be reasons to raise interest rates more aggressively. But when Fed officials meet in Washington this Tuesday and Wednesday, no rate hike of 100 basis points may become the prevailing argument.
Since the Fed last met in July, Chairman Jerome Powell has said that data “overall suggest that the economy remains firm and inflation is broad and persistent. A bet on 75 basis points of interest rates, rather than the 50 basis points of interest rate hikes that may also be discussed this week. But policymakers may want to avoid raising interest rates more aggressively, because investors may think that this will make the U.S. economy A recession next year.
This response could have the unintended effect of heightening speculation that the Federal Reserve will cut interest rates in 2023, reduce long-term bond yields, ease financial conditions, and push monetary policyin the wrong direction.
"A 100-basis-point hike would encourage people who are hard-landing," said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., who forecast a 75-basis-point rate hike but acknowledged they could go further The case for rate hikes.
“Countering expectations of policy easing next year is not just a matter of adjusting forecasts, but exerting more influence on long-term interest rates,” Feroli said.
Fed officials will release policy at 2 p.m. Washington time on Wednesday Statement, Powell will hold a press conference in 30 minutes. They will also update forecasts, which are expected to show that interest rates will rise to 4% in the next few months from the current target range of 2.25% to 2.5%, and remain at slightly in 2023 above the 4% level.
