Top forecaster Jason Schenker of Prestige Economics predicts the Federal Reserve may implement a half-percentage-point rate hike in December if inflation remains elevated after September's increase. Schenker, who correctly anticipated the September move back in June, believes the central bank will likely pause in October to gather more data. He suggests a 50-basis-point increase in December would be a stronger response to persistent inflation, potentially leading to a pause in early 2025. Conversely, a smaller 25-basis-point hike could necessitate further increases in the first quarter of next year. The swaps market currently prices in a quarter-point hike for December, while futures initially priced in higher odds for October before pulling back after recent inflation data.
Federal Reserve Chair Kevin Warsh initiated the current hiking cycle last month, the first since 2023, aiming to curb rising inflation. Schenker argues there is insufficient data for another move at the October meeting, as much of the recent inflation report was collected before the September rate adjustment. Between October and December, officials will review two additional jobs reports and another CPI print. Schenker emphasizes that waiting six weeks provides a clearer picture, stating, "If they see 25 basis points did nothing, then I think that they might roll out the 50."
Source: Bloomberg Markets · Summarized by HeadlinesBriefing