Changes to the Fed’s Interest Rate Forecasts – Latest Data Released

While expectations regarding the Fed’s September interest rate decision lack a clear direction, forecasting markets and leading Wall Street banks are pricing in different scenarios. According to forecasting market data, investors are almost equally divided between the Fed keeping rates unchanged and raising them by 25 basis points.

In the forecasting markets, the probability of the Fed not changing interest rates at its September meeting is priced at 49 percent, while the probability of a 25 basis point rate increase is at 47 percent. A rate increase higher than 25 basis points is only considered a 2 percent probability.

Wall Street banks’ forecasts similarly show significant differences. Bank of America expects the Fed to implement a total of three interest rate hikes in September, October, and December. JPMorgan forecasts that rates will remain unchanged in September and that the final rate hike of the year will occur in December.

Goldman Sachs, Morgan Stanley, and Barclays all predict the Fed will not raise interest rates again until the end of the year. Citi, however, expects rates to remain unchanged in September, followed by rate cuts in October, December, and January.

Bank of America CEO Brian Moynihan also reiterated the bank’s expectation of three interest rate hikes. Moynihan stated that the US labor market remains strong and that inflation needs to fall further, suggesting the Fed could raise rates in September, October, and December.

Moynihan also stated that spending habits among high-income and low-income consumers are beginning to converge. The Bank of America CEO considered this development a positive sign for the US economy.

*This is not investment advice.