Fed Expected to Hike Rates as Dot Plot Takes Center Stage

The Federal Reserve is expected to raise its benchmark interest rate by 25 basis points at its meeting today, marking the first hike since July 2023 and pushing the target range to 3.75%-4.00%.

Interest rate futures are pricing in a nearly 90% probability of the move, up from around 70% before the latest inflation data, according to .

The outcome is largely settled, but the dot plot and Chair Kevin Warsh's press conference will be under scrutiny. A hawkish dot plot projecting further hikes would push long-duration yields higher and lower the dollar, while a signal of a near-term pause would offer relief.

Economists at Citi note that the combination of slightly stronger-than-expected core CPI and renewed rise in energy prices is likely to push consensus toward hiking 25bp. Morgan Stanley forecasts two hikes - September and December - due to slower disinflation, AI-driven demand, and credibility concerns surrounding Warsh.