Castle Securities: Worsh may unexpectedly raise interest rates this week

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Mars Finance news. On July 28, Frank Fliat, head of macro strategy at Citadel Securities, expects the Federal Reserve to unexpectedly raise rates by 25 basis points this Wednesday. He believes this move will strengthen Fed Chair Wosh’s commitment to price stability and highlight the central bank’s independence in monetary policy decision-making. Frank Fliat said the market may once again be underestimating the Fed’s hawkish shift. This week’s rate hike may in fact mark the end of the “forward guidance era,” when the Federal Reserve no longer clearly signals policy decisions in advance. The interest rate swap market currently estimates the probability of a 25-basis-point hike at this meeting at about 40%, but it has already almost fully priced in one hike before September. Citadel Securities believes the impact of an early rate hike this week on the market will be greater than if the Federal Reserve waits until September to act. Tightening policy earlier could change market expectations for how the Federal Reserve responds to inflation, and affect corporate pricing and employee wage demands, thereby reducing the additional tightening ultimately required. Despite recent weakening in employment and inflation data, Frank Fliat still believes inflation risks remain elevated and that the labor market is stable. The situation in the Middle East pushing up energy prices also increases the likelihood of a rate hike; although oil prices fell after the U.S. paused its daily airstrikes on Iran, crude oil has still risen cumulatively by about 20% this month.
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