The Federal Reserve is raising rates on Wednesday. That much is certain. Beyond that, there are weighty questions about whether the central bank’s efforts to bring down inflation can succeed without crashing the economy. With Fed Chairman Jerome Powell talking about “pain” for the economy in his Jackson Hole speech in August, investors are bracing for a hawkish message.
were down sharply on Tuesday ahead of the Fed decision and the yield on the 10-year Treasury note
jumped to 3.57%. Read: Can the Fed tame inflation without further crushing the stock market? The Fed decision will come at 2 p.m. Eastern on Wednesday. How hawkish can the Fed get? Here are some signposts Fed watchers are paying close attention to.How large a rate hike on Wednesday? Michael Gregory, deputy chief economist at BMO Capital Markets, thinks the Fed will raise the federal funds rate by 75 basis points to a range of 3% to 3.25%. The outsized gain in core consumer price inflation in August sealed the deal for 75bp move and boosted the odds of a 100bp move, he said. Fed-funds futures markets and some analysts have penciled in the possibility of a 100 basis point rise, but Gregory argued against it. “An issue with an unprecedented 100bp move is that it could convey a sense of policy panic. A similarly unprecedented 75bp move three-peat conveys a better sense of ‘we got this,’” Gregory wrote, in a note to clients. But some economists, like Japanese investment bank Nomura, are sticking with forecasts of a 100 basis point move . See: What stock-market investors fear from a full percentage point Fed rate hikeWhat Powell says about November Before the surprising gain in core consumer inflation in August, economists thought the Fed would downshift in November to a smaller rate hike of a quarter percentage point. Now Powell might leave open the door for a fourth 75bp move in Nov. 1-2. “Powell will again be hawkish at the press conference; any dovish impression will likely be the result of miscommunication,” said Roberto Perli, head of global policy at Piper Sandler. Fed Gov. Michelle Bowman said last month that “similarly sized increases” should be on the table until the Fed sees inflation declining in a consistent, meaningful, and lasting way. “If FOMC participants in general hold this view, and Powell specifically holds this view, and they equate ‘similarly-sized’ with 75bp rate hikes, then this should not be the last 75bp rate hike,” sa …