Fed likely to hold off on raising rates by 100 basis points this week to avoid unnerving already jittery markets, CFRA says

Fed likely to hold off on raising rates by 100 basis points this week to avoid unnerving already jittery markets, CFRA says

The Federal Reserve is expected to raise its key interest rate this week, but it is unlikely to raise by 100 basis points, a massive move that would shake up investors already jittery after August’s inflation report. CFRA Research said on Monday.

“We think a 100bps increase would make Wall Street nervous because it would mean the Federal Open Market Committee is overreacting to the data instead of sticking to its game plan,” said Sam Stovall, CFRA’s chief investment strategist. .

“It would increase the likelihood that the FOMC would eventually overreach and reduce the possibility of a soft landing,” he said.

The Fed, led by Chairman Jerome Powell, is expected to raise rates for the fifth time in 2022 on Wednesday. Investors generally expect a third straight 75 basis point hike to bring the Fed funds rate to a range of 3% to 3.25%. But investors also see a 20% chance the Fed would vote to hike by 100 basis points, or 1 percentage point, according to CME’s FedWatch tool.

Stovall said last week’s hotter-than-expected August inflation report indicated a faster-than-expected tightening trajectory and a weaker path for gross domestic product growth through the end of the year. Headline inflation was 8.3%, cooler than July’s 8.5% but higher than the consensus estimate of 8.1%.


Government bond yields continued to rise. The Fed’s policy-sensitive 2-year Treasury yield hit 3.96% for the first time since 2007 on Monday, and the 10-year Treasury yield rose above 3.5% for the first time since 2011. An inversion of the yield curve is considered a signal of economic recession.

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Last week was the worst week for U.S. stocks since June, with the Nasdaq Composite down more than 5% and the S&P 500 down 4%. Shares fell on Monday. Stovall noted that all sizes, styles and sectors within the S&P Composite 1500 fell last week.

“Despite the possibility of further short-term declines in stock prices, CFRA Research still thinks the June lows will hold,” he wrote.

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