By Nathalie Voit
The market is betting on a 75-basis point hike this month.
New economic data, particularly June’s troubling consumer inflation report that showed prices for consumer goods and services surging by 9.1%, left the door open for another aggressive 0.75 percentage point hike.
The red-hot inflation reading led to big bets in the futures market immediately after its release. According to data from CME group, federal funds futures for July immediately soared to 81 basis points following news of the Consumer Price Index report on July 13.
The 81-basis point hike indicates a 0.81% anticipated interest rate increase from the Fed at its July 26-27 meeting. By Friday afternoon, the market had priced in a 0.93% rate hike for July, according to research from BMO.
As of July 18, the probability of a full percentage point hike on July 27 is 30.9%, while the likelihood of a 75 basis points funds increase is 69.1%, according to the CME’s Fed Watch Tool. The data largely reflects market expectations of a three-quarter point hike. However, some investors are bracing for a monstrous 100-basis point surge.
The projected 0.75% rate hike would lift the fed funds target rate to 2.50%-2.75%. The current rate range is between 1.50% and 1.75%, according to data from CME.
