75bp Hike, With Room To Keep Up The Pace To Year-End

Rate Decision: While a 100bp hike is not out of the question today, several factors suggest that the FOMC will opt for “only” 75bp. The 20% implied pricing for 100bp increases scope for a knee-jerk dovish reaction to a 75bp decision, all else being equal.

• A 100bp raise hasn’t really been floated as a central option on the table. As evidenced by the June decision, they had an opportunity to prepare markets for a larger-than-priced hike in the blackout period via the media, but didn't take it.
• The surprisingly high August CPI reading merely cemented a 75bp hike as opposed to a 50bp hike, in our view.
• At this point, the FOMC probably won’t see a benefit or need to accelerate the pace of tightening as market pricing provides plenty of scope for further tightening before year-end.
• A further 100bp of hikes are priced in over Nov and Dec – and the FOMC has shown that they are willing to keep up the pace at 75s should the data (and primarily inflation data) warrant.