Fed Day: '25bps seems the most likely, and best outcome' - JPMorgan

March 22, 2023 6:32 AM EDT
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The U.S. Federal Reserve rate decision is due today at 14:00 EST (18:00 GMT).’s Fed Rate Monitor Tool sees the 90% probability that the Fed will raise rates by 25 basis points.

This is in line with JPMorgan’s expectations with their desk analysts noting that most of their conversations with clients in recent days were about the Fed’s decision today.

“25bps seems the most likely, and best outcome,” analysts wrote in the morning briefing.

This looks like the safest path for the Fed given the market expectations as a pause would be likely seen “as the Fed believing that financial contagion is a bigger problem than initially thought.”

“A 50bps hikes would be a shock to the markets as Powell has preferred to take exactly what the market has priced in,” analysts further noted.

“Given the relatively smooth functioning of short-term funding markets, why risk disrupting those markets when any Fed action would be viewed as additional QE, potentially thawing financial conditions. Lastly, as 25bps hike allows the Fed to continue the inflation fight while separating the varied tools available to the Fed.”

While a 25bps rate hike looks like a case for today, JPMorgan says the “biggest remaining question is whether today is the end of the hiking cycle.”

Futures trade modestly lower in anticipation of the Fed rate decision.

By Senad Karaahmetovic

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JPMorgan, Senad Karaahmetovic