Fed to Likely Adhere To 75 Bps Rate Hike In Its July 26-27 Meet

The US Fed in its impending meet in July next week shall likely be taking a 75 basis point rate hike as against a call for an even larger hike. This is as there is a probability of 40% that recession shall hit the US next year as found out by Reuters poll of economists.

In June, inflation came in at a 40-year high, nudging a stance of an even higher rate hike to combat the red-hot inflation. Nevertheless there is also even a view which states that the Fed would have to return to rate cut spree earlier than expected to prevent recession.

Also, other policymakers support of a 75 basis point rate hike. 1 bps is one-hundredth of a percentage point. As per the Reuters poll conducted between July 14-20, out of the 102 economists, 98 were of the view that the Fed shall go for 75 bps rate hike and the remaining expected of a 100 bps or 1% rate hike taking interest rates to 2.25-2.5%.

Fed funds futures on the other hand anticipated only a 20% chance of a rate hike by 100 bps.

"Median predictions from the latest poll showed a 40% probability of a U.S. recession over the coming year, with a 50% chance of one happening within two years. That was a significant upgrade from 25% and 40% in a June poll", said the Reuters report.

"There seems to be an inflation tax on the consumer and that continues to build up and take its toll and eventually pushes the economy into a mild recession," said Aditya Bhave, senior U.S. economist at Bank of America Securities.