The Federal Reserve Faces Economic Crosswinds: What to Expect on Rate Hikes

According to data from CME Group, Wall Street traders are anticipating a 0.25% rate hike by the Federal Reserve on Wednesday. However, they also believe that the Fed may be forced to cut rates at least twice before the end of the year as economic growth slows down.

Principal Asset Management’s Take on Rate Hikes

Seema Shah, the Chief Global Strategist at Principal Asset Management, has a different perspective. Shah believes that with inflation still elevated and the overall economic picture appearing robust, the Fed is more likely to maintain additional rate hikes as a possibility. Shah suggests a June hike is still plausible, especially if economic data slows gently and inflation remains high.

Citigroup’s Hawkish Outlook

Economists at Citigroup also expect the Fed to adopt a hawkish tone in their announcement, indicating that inflation is still not under control and that interest rates need to remain elevated. Citigroup analysts base their prediction on recent price-level data, such as the graphic from the Atlanta Federal Reserve.

Political Pressure for a Pause

On the other hand, Sen. Elizabeth Warren and Rep. Pramila Jayapal have called for a pause in rate hikes, warning of potential job losses. They argue that continuing to raise interest rates would be an abandonment of the Fed’s dual mandate to achieve both maximum employment and price stability.

Nomura’s Dovish Hike Prediction

Analysts at Nomura global financial services group predict a “dovish hike” of 0.25%, with the Fed replacing previous language that signaled additional hikes. This indicates a more cautious approach to future rate hikes.