While the market is asking for a 75BPS increase in interest rate, a few weeks ago Fed chairman, Jerome Powell, asserted that a 75BPS increase in interest rate is off the table. Therefore, the upcoming meeting is essential and will give us a sense of who rules who.

In a long run

If Fed goes with 75BPS, it indicates a weak, unreliable, and impulsive Fed which might ignore its economic models to please the market.

If Fed goes with 50BPS, it signals a strong Fed to the market that does not care about how the market wants them to react to the inflation but will follow its economic models to determine the proper interest rate.

We are aware that Fed needs to hike more rapidly, but the best approach to this would be to raise it by 50BPS and promise a 100BPS or higher rate hike for the next meeting to manage inflation expectations.

Share this with your friends!

Leave a Reply