Federal Reserve Will Raise Interest Rates By 25BP On February 2 To Nearly 100%

Key Points:

• According to CME “Fed Watch,” the chance of the Fed hiking interest rates by 25 basis points to the range of 4.50%-4.75% in the early morning of February 2 is 99.9% on February 1.
• While inflation is far over goal and unemployment remains at a cyclical low, there are signals that the economy is responding to tighter monetary policy, and the Fed will be mindful of concerns that raising rates too quickly risks tipping the economy into recession.

Following the release of ADP, the likelihood of the Federal Reserve hiking interest rates by 25 basis points in the early hours of tomorrow increased to about 100%.

According to CME “Fed Watch,” the chance of the Federal Reserve (Fed) raising interest rates by 25 basis points to the range of 4.50% – 4.75% in the early hours of February 2 is 99.9% on February 1, and the probability of raising interest rates by 50 basis points is 0%. The chance of no change is 0.1%; the probability of a 25 basis point cumulative rate rise by March is 16%; and the probability of a 50 basis point cumulative rate hike is 84%. ADP employment in the United States climbed by 106,000 in January, less than the predicted 178,000, and the lowest growth since January 2021.

Following a 425bp increase in the Federal Reserve funds target range in 2022, including 75bp and 50bp hikes, expectations are firmly focused on the Federal Reserve deciding for a more moderate 25bp interest rate increase on Wednesday, bringing the goal range to 4.5-4.75%. While inflation is far over goal and unemployment remains at a cyclical low, there are signals that the economy is responding to tighter monetary policy, and the Fed will be mindful of concerns that raising rates too quickly risks tipping the economy into recession.

After conducting their most severe hiking cycle in 40 years, officials appear to be favoring “normal” 25bp rises from now on, although most warn that there is still work to be done. As a result, it can be anticipate to hear that further interest rate rises are “reasonable,” and that the balance-sheet reducing policy will be maintained.

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