The Fed's Next Move: Is a 50bps December Hike a Real Possibility?
Attention is shifting to the Federal Reserve's final policy meeting of the year, with fresh analysis suggesting a more aggressive rate hike could be under consideration. Jason Schenker, president of Prestige Economics, who accurately predicted the central bank's recent move, now points to the possibility of a 50 basis-point increase in December.
A Strategic Pause Before a Potential Power Move
Schenker believes the Fed may allow a period for its September rate hike to be absorbed by the economy before considering a more forceful step in December. This interlude provides a critical window to gauge the impact of existing tightening.
Upcoming Data Holds the Key to the Decision
Between the October and December meetings, Fed officials will review two additional employment reports and another round of CPI inflation data. These releases will be pivotal in determining whether a standard 25bps increase suffices or a larger adjustment is warranted.
“They’ll have more data in just six weeks,” Schenker noted. “If they see that 25 basis points isn't making enough of a dent, then I think they might go for 50.”
Diverging Policy Paths Based on the December Choice
Schenker outlined two distinct scenarios stemming from the December decision:
- A 50bps Hike: This aggressive move could lead to a pause in further rate increases early in 2024, allowing the Fed to assess the broader economic effects.
- A 25bps Hike: Sticking with the conventional increment would make another rate hike in the first quarter of next year more likely, extending the tightening cycle.
This forecast adds a new dimension to the market's understanding of the Fed's balancing act between inflation control and economic growth. The upcoming economic indicators will quietly chart the course for the year-end policy decision.