The “magic operator” that first predicted the September rate hike changed its mind: the Federal Reserve may directly reach 50 basis points in December

The Zhitong Finance App notes that a forecaster who first predicted the latest interest rate hike by the Federal Reserve has now said that a larger rate hike of 50 basis points may be offered in December.

Prestige Economics President Jason Schenk said he believes the Federal Reserve is unlikely to raise interest rates at this month's meeting. Instead, he believes that the Federal Reserve may let the September rate hike “take a breather” before raising interest rates more drastically in December.

Schenk said, “By December, if inflation hasn't been contained in a more meaningful way after the September rate hike, they may choose to raise interest rates by 50 basis points instead of 25 basis points and take a bigger bite.”

Federal Reserve Chairman Kevin Walsh brought the Federal Reserve into a rate hike mode last month — for the first time since 2023 — to try to curb rising inflation.

Although many economists anticipated this rate hike in the weeks leading up to the September meeting, as early as June, Schenk was the first economist surveyed to predict this rate hike. Schenck writes predictions at Prestige, which regularly ranks among the highest-ranked forex forecasting agencies on Bloomberg's rankings.

Recent discussions between traders and economists have focused on whether the Federal Reserve will raise interest rates by another 25 basis points this month, or whether to leave this rate hike until the December meeting. The swap market has fully factored in the December rate hike of 25 basis points.

As consumer inflation was higher than economists' expectations due to soaring fuel costs, the futures market's probability of an October rate hike rose above 50% and declined somewhat on Wednesday.

However, Schenk believes that the Federal Reserve will not get enough information to act again at the October meeting because a large part of the data released on Wednesday was collected before the Federal Reserve raised interest rates in September.

“I don't think there are enough data points to give them the kind of confidence they might need,” Schenk said.

Meanwhile, between the October and December meetings, Federal Reserve officials will also receive two employment reports and a CPI data to inform future decisions.

“It's just a 6-week wait, but they'll get more data,” Schenk said. “If they see that 25 basis points don't work, then I think they'll probably come up with 50 basis points.”

Schenk predicts that a larger rate hike could mean suspending further rate hikes early next year; while raising interest rates by only 25 basis points in December would make it “more likely” to raise interest rates again in the first quarter of next year.