Expect a full percentage point
For Sam Stovall, chief investment strategist at CFRA Research, a full percentage point rate increase would “disturb Wall Street” because it would imply that the central bank “Overreacting towards the data rather than sticking to his plan.” He added that after the previous seven interest rate increases, US stock indices fell four times over a period of one, three and six months.
Ed Yardeni, head of his namesake research firm who forecast market bottoms in 1982 and 2009, also sees the Federal Reserve raising interest rates by 100 basis points this month, given President Jerome Powell’s thinking and the central bank’s seemingly hawkish economic outlook.
Yardeni noted that this could cause the S&P 500 to retest the June 16 low of 3666.77, about 6% below current levels.
While a policy surprise can certainly move markets, the Fed’s revised projections of where monetary policy will eventually end and how long it is likely to remain at that level will be equally important.
Swaps that projected rates over the next two years are now priced to peak at 4.5% in March 2023 – a full point higher than expected after the last meeting in July.