According to data from CME FedWatch, there is a 92.3% probability that the Fed will hike interest rates amid ongoing inflationary pressures.

  • Financial platform Barchart cited the odds in a post on X, noting that a rate hike “seems close to a done deal now.”
  • BMO Capital Markets Senior Economist Jennifer Lee said in a Bloomberg interview that the firm is now looking for at least a couple of rate hikes by the end of the year. 
  • Meanwhile, Scott Chronert, Head of U.S. Equity Strategy at Citi Research, told CNBC on Monday that a preemptive 25–50 bps Fed rate hike could help anchor long-term yields and ease uncertainty, despite mixed economic conditions and a weak consumer.

As the Federal Reserve’s Sept. 15-16 meeting approaches, traders are getting increasingly confident that the central bank will hike interest rates by at least 25 basis points. 

According to data from CME FedWatch, there is a 92.3% probability that the Fed will hike interest rates from the current 3.50% to 3.75% levels amid ongoing inflationary pressures. Many of Wall Street’s analysts and commentary services agree that a hike is the most probable outcome from the Federal Open Market Committee (FOMC) meeting scheduled for this week. 

What Top Market Participants Are Saying

Financial platform Barchart cited the odds in a post on X, noting that a rate hike “seems close to a done deal now.”

BMO Capital Markets Senior Economist Jennifer Lee said in a Bloomberg interview that Fed Chair Kevin Warsh has been sounding progressively more hawkish in his public appearances since taking office in May. Lee added that Warsh’s comments at his latest speech at the Jackson Hole Economic Policy Symposium, where he said there wasn’t a significant improvement in inflation numbers yet, indicated a potential rate-hike scenario. 

“We are now looking for at least a couple of rate hikes by the end of the year,” Lee said. 

Meanwhile, Scott Chronert, Head of U.S. Equity Strategy at Citi Research, told CNBC on Monday that a preemptive 25–50 bps Fed rate hike could help anchor long-term yields and ease uncertainty, despite mixed economic conditions and a weak consumer.

Long-term bond yields have been climbing, even after the U.S. Department of the Treasury said last week it will triple its upcoming debt buyback plan to $6 billion. The U.S. 10-year Treasury yield was trading at 5.029% at the time of writing, while the U.S. 30-year Treasury yield was trading at 5.387%.

Chronert said that while the fundamentals do not support a Fed rate hike, a 50 bps increase could have a stronger market impact, potentially delivering a “bullish shock effect,” while 25 bps may not be enough.

“I'm just saying that it may not be a 25 and done if they decide to go down that path,” he said. 

A Rate Hike Would Be At Loggerheads With Trump’s Stance 

Even as markets are predicting a rate hike, U.S. President Donald Trump said over the weekend at the Irish Open golf tournament in Doonbeg, Ireland, that the U.S. "should be paying the ​lowest interest rate in the world" irrespective of the what the Fed’s data indicates about inflation ⁠and the economy.

The Kobeissi Letter said in a post on X that nine days ago, Trump had threatened to "stop trading" with all countries that the U.S. has a trade deficit with if the Fed does not cut rates.

“Currently, markets believe the Fed will HIKE rates on Wednesday. In other words, the market now expects Fed Chair Warsh to make the exact opposite policy decision that President Trump wants, just 3 months after he was appointed,” the market commentator said.

“If the market is correct and President Trump follows through on his threat, global trade is about to take a major turn. This move would effectively cut off trade with ~50% of all US trading partners, including Mexico, China, Taiwan, Germany, Japan, South Korea, Canada, and India,” it added. 

What Does Retail Think?

A Stocktwits poll that sought to gauge what retail investors think the Fed’s decision will be in its September meeting found that a majority (43%) expect the central bank to keep rates steady. Meanwhile, 41% expect a 25 bps hike, while 10% expect a hike of 50 bps. Only 6% have voted that the Fed is likely to cut interest rates by 25 bps. 

One user said, “If they hike they pop the AI bubble.”

Another user said, “The FED did a JUMBO cut 50 bps in SEP 2024 at the exact same core CPI number as today of 2.4%. If they do any hikes just before the midterm elections, it would expose the FED as an arm of the Democrat party.”

A third user said, “To me it seems no change is the best play. good or bad, let it fester a bit longer and see.”

Market Reaction 

Meanwhile, among ETFs tracking benchmark indexes, the SPDR S&P 500 ETF (SPY) was down 0.41% at the time of writing amid ‘extremely bearish’ sentiment. 

The SPDR Dow Jones Industrial Average ETF Trust (DIA) was down 0.43% and the Invesco QQQ Trust (QQQ) fell 0.38% overnight, also with sentiment in the ‘extremely bearish’ territory for both. 

Meanwhile, the iShares 20+ Year Treasury Bond ETF (TLT) was down 0.52% amid ‘bearish’ sentiment. 

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