Probability of U.S. Rate Hike Hits 93%...Global Investment Banks, Including JPMorgan Chase, Revise Forecasts

[Financial News] With U.S. inflation proving stronger than expected and international oil prices surpassing $100 per barrel, global investment banks have successively shifted toward forecasting a September rate hike by the Federal Reserve. The market-implied probability of a 0.25 percentage-point rate increase this week has exceeded 90%.
According to British media reports on the 14th local time, JPMorgan Chase, HSBC, and Deutsche Bank forecast that the Fed will raise its policy rate by 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting scheduled for the 15th and 16th. Some banks expected interest rates to remain high for a considerable period to bring inflation back to the Fed’s 2% target.
Market expectations also shifted rapidly. According to the CME FedWatch Tool of the Chicago Mercantile Exchange (CME), the probability of a 0.25 percentage-point September hike priced into the futures market surged from about 70% before the latest inflation data were released to above 90%. In New York trading on the 14th, the probability rose as high as 93%.
The sharp change in Wall Street’s outlook was driven by recent inflation data. U.S. consumer and producer prices in August came in stronger than expected, raising doubts about whether price pressures could continue to ease without additional tightening.
Concerns about energy-driven inflation also resurfaced after armed conflict in the Middle East pushed international oil prices above $100 per barrel.
Ryan Wang, an economist at HSBC, forecast a September rate hike, saying, "The lack of progress on inflation ultimately tipped the balance."
JPMorgan Chase also turned more hawkish. Economists led by Michael Feroli said, "Recent increases in bond yields and energy prices, along with stronger-than-expected inflation data, have made a rate hike at this FOMC meeting more likely than a hold."
JPMorgan Chase specifically said, "Recent inflation data raise questions about the persistence of the disinflationary trend," and forecast one additional rate hike later this year after September. It also raised its estimate for the long-run policy rate to 3.25%.
At this FOMC meeting, attention is expected to focus not only on whether rates will be raised, but also on whether the move represents a one-time adjustment or the beginning of a new cycle. With the yield on 10-year U.S. Treasury bonds recently breaking above 5% intraday, bond and stock market volatility could rise again if the Fed strongly signals the possibility of further hikes.
[email protected] Hong Chae-wan Reporter