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Investors Bet On Fed Rate Hike Pause As September Meeting Approaches

Wall Street economists predict a temporary halt in rate hikes due to softening labor market and mild inflation data.

While Fed Chair Jerome Powell did not rule out another increase in interest rates, investors’ bets on a pause at the Federal Reserve’s September meeting surged to an 81.5% probability on Tuesday, the highest recorded thus far.

Scrap metal at SA Recyclings Port of Los Angeles, in San Pedro on Tuesday, August 1, 2023. (BRITTANY MURRAY/GETTY IMAGES)  

The prevailing sentiment among Wall Street economists suggests a pause in rate hikes during the Fed’s meeting in September, according to Bloomberg.

Fed officials have emphasized their reliance on incoming data to determine their next steps regarding rate adjustments. However, since the July meeting, economic data has been pointing towards a potential pause.

The job market continues to be robust as the jobs report have been considered by Powell when it came to the increase in interest rates.

It is possible that the interest rate could be raised in September, what Powell had previously stated in the last press conference.

“It seems like the economy is weathering this well,” Powell said. “Of course we’re watching it carefully and expect to continue to do that.”

The disappointing July manufacturing activity data reported by the Institute for Supply Management (ISM) and a decline in job openings have been driving expectations higher for an interest rate pause. A decline in the number of job openings also indicated a potential softening in labor market conditions, ahead of crucial jobs data this week.

Current market predictions place the likelihood of a September rate hike at 18.5%.

Mild inflation data expected before the September 19-20 meeting, along with potential challenges like the recommencement of student loan payments, are seen as reasons to justify a temporary pause in rate hikes, according to economists screened by Bloomberg’s reporter Steve Matthews.

Douglas Porter, the chief economist at Bank of Montreal, believes the incoming data will align with the Federal Reserve’s expectations. He suggests that the current state of short-term rates, decreasing core inflation, and a softening labor market indicate that the Federal Reserve’s actions have been sufficient.

The Federal Reserve may also be cautious due to the impending resumption of student loan payments in October. Economists at PNC Financial Services Group estimate that these payments, averaging $350 to $400 per month for nearly 27 million borrowers, could negatively impact consumer spending.

It is uncertain that there could be a horizon of a potential recession as economists have not ruled out the possibility.

“If we want to move toward an economy of the future, we need to end our addiction to fossil fuels and advance new clean energy and infrastructure projects. That means doubling down on the investments made in the Inflation Reduction Act and Bipartisan Infrastructure Law,” said Rep. Frank Pallone (D-NJ), in his response of the currently economic situation for the United States. 

Produced in association with Benzinga

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