Fed's Credibility on the Line as Rate Hike Risk Reprices

The Federal Reserve's credibility is on the line this week as markets may be underpricing the risk of a rate hike.

With only four FOMC meetings remaining in the year, including this week's decision, policymakers are running out of time to deliver on their promise to tackle inflation.

Inflation remains above target, and services inflation is still sticky. The labour market continues to look tight, while goods prices are no longer providing the offset they once did.

Markets currently assign a 40% probability of a hike at this week's FOMC meeting, but history suggests that when markets price a more hawkish Fed, the US dollar tends to strengthen.