US Fed might unleash another 100 bps hike this year, believe market watchers

The first rate hike by the United States Federal Reserve was out of the blue but the 75 basis points or 0.75 percent increase announced yesterday was not. The US policy rate is now between 2.25 to  2.5 percent and as the hike was in-line with expectations, markets reacted in a dovish manner to Fed Chair Powell’s press conference and comments.

Recession fear however continues to linger and it is noteworthy that this was the US central bank's first back-to-back rate hike since the 1980s.

Reacting to the Fed rate hike, Taimur Baig, MD and chief economist at DBS Group Research said that the Fed is unlikely to take its foot off the pedal given how strong the US labour market data is.

“As far as the recession outlook for the US and where the Fed goes from here, I think it's very clear that given how strong the labour market is that the Fed would not relent. They may not follow these two 75 basis points hikes with another 75, but they will do at least 50 bps. And for the rest of the year, they probably will end up hiking by another 100 basis points, if not more,” he said.

Jerome Powell, Chair, US Federal Reserve, yesterday in his comments after the hike said that they will not hesitate to make another large rate hike if needed.

Ed Yardeni, president of Yardeni Research also believes that a 75 bps hike in September is almost a given.

“The Fed will do 75 basis points at the September meeting, I think that will be the end of it. The US is going to be experiencing very little growth. And it's the rest of the world that is more likely to have a recession, brings commodity prices down and makes America look pretty attractive on a global basis, as a place to invest.”

Recently, the International Monetary Fund said that the world's three biggest economies are stalling and trimmed down growth forecasts for most markets.