Fed Rate Hike Odds Skyrocket Above 90% Amid Inflation Fears

The Federal Reserve's upcoming meeting on September 15-16 has traders and analysts increasingly confident that interest rates will rise. According to data from CME FedWatch, there is a 92.3% probability of a rate hike from the current 3.50% to 3.75% levels amid ongoing inflationary pressures.

BMO Capital Markets Senior Economist Jennifer Lee said in a Bloomberg interview that Fed Chair Kevin Warsh has been sounding progressively more hawkish in his public appearances since taking office in May, indicating a potential rate-hike scenario. Lee added that the firm is now looking for at least a couple of rate hikes by the end of the year.

However, some analysts are cautioning against a rate hike, citing mixed economic conditions and a weak consumer. Scott Chronert, Head of U.S. Equity Strategy at Citi Research, suggested that a preemptive 25-50 bps Fed rate hike could help anchor long-term yields and ease uncertainty, but noted that the fundamentals do not support a rate hike.

The market reaction to a potential rate hike is also being closely watched, with some analysts predicting a 'bullish shock effect' if rates rise. The SPDR S&P 500 ETF (SPY) was down 0.41% at the time of writing amid 'extremely bearish' sentiment.