Traders in the futures market have maintained their bets that the central bank would increase interest rates by a quarter of a percentage point at its next meeting. Also, some analysts are sticking to their prediction that the Fed would raise the target rate for federal funds rate by 0.5 percentage points.
Just 20% of investors anticipate a rise of 50 basis points. In terms of percentage, one basis point is equivalent to a one-hundredth of a percentage point.
On February 1, 2023, the market anticipates another rate hike from the Federal Reserve (Fed) of the United States, this time by 0.25 percentage points, to 4.5%-4.75%
Of course, the Federal Reserve might decide to increase rates by just 0.5 percentage points, but this outcome is far from certain. Eight meetings are planned for the Fed to make a rate decision in 2023, the first of which will be in February.
Inflation fears have led markets to anticipate that the Fed would maintain its rate-hiking policy early in 2023. However, U.S. inflation is on the decline, according to recent statistics. Inflation hit a record high of 9.1% in June, but by November, it had dropped to 7.0%, according to the Consumer Price Index. The Fed still thinks the recent drop in inflation is inadequate.
While inflation is falling, it is still relatively high, and there is a danger that it may not fall neatly to the Fed’s target of 2%. For instance, even if the Fed anticipates more moderate increases in the prices of housing and goods in 2023, it is worried that wage growth of roughly 6% will continue to keep inflation high in services.
Moreover, inflation might be pushed higher again if the economy were to experience an unanticipated economic shock, such as the conflict in Ukraine or a breakdown in the supply chain.