Interest Rate Increase Expectations Are at Their Peak Before the Fed's September Meeting

The US Federal Reserve (Fed) will hold the Federal Open Market Committee (FOMC) meeting on September 15-16, which will determine the direction of global markets. The strong macroeconomic data announced before the meeting and the hawkish messages of Fed President Kevin Warsh brought the expectations for a 25 basis point interest rate increase to the top.

INFLATION IS STUBBORN, EMPLOYMENT IS STRONG

The two main data that are decisive in the interest rate decision, inflation and employment, showed that the temperature in the US economy continues.

In August, non-agricultural employment exceeded expectations by increasing by 162 thousand people, and the unemployment rate remained stable at 4.1 percent. In addition, an upward revision was made to the data for June and July for 55 thousand people.

Consumer Price Index (CPI) increased by 3.4 percent annually in August, and Producer Price Index (PPI) increased by 5.4 percent annually, above expectations. The fact that core inflation increased by 0.3 percent monthly proved that pricing pressures continue.

WARSH'S MESSAGES AND THE CRACK WITHIN THE FOMC

In his speech in Jackson Hole last month, Fed President Kevin Warsh signaled that additional steps could be taken if the inflation target was not achieved. Emphasizing that price stability is the main focus, Warsh demonstrated his determination by saying, "We must make sure that core inflation moves towards our target, otherwise we have work to do."

On the other hand, differences of opinion within the Fed also attract attention. In July, 3 members of the board, which kept the interest rates constant at 3.50-3.75 percent, voted for the increase. While members such as Beth Hammack and Susan Collins support the interest rate increase, Christopher Waller argues that the interest rate can be kept constant if signs of disinflation continue.

ANALYSTS "EXPECTING INTEREST RATE INCREASE"

Analyzing the data and the Fed's verbal guidance, experts are of the opinion that the tightening cycle will continue.