- The FOMC has kept the federal funds rate at 3.5%–3.75% through all five meetings this year, but CME FedWatch now shows a 92.5% chance of a 25bp hike versus 7.5% for a hold.
- The Fed's preferred inflation gauge, PCE, rose 3.7% annually in July while core PCE gained 3.3%; CPI was up 3.4% year-over-year in August and core CPI rose 2.4%.
- The 10-year Treasury yield is hovering near 5%, the highest since 2007, as rising yields increase the federal government's debt servicing costs and drive budget deficits.
- Vanguard senior economist Josh Hirt said a failure to hike would risk a more adverse market reaction and credibility concerns unless the Fed's communication was extremely strong.
Quotes
“developments over the last week, including the inflation report today, I think almost make the case that you could have a somewhat more adverse reaction if the Fed does not go [on Wednesday] unless the communication around the rationale behind that was extremely strong relative to them actually moving at this meeting.”
“I think that actually could very much be the case, in fact, rather than the alternative – which would be not going and the market potentially thinking about credibility issues and extending even further.”