The Federal Reserve could raise interest rates again in September, even though markets are skeptical of another hike, according to Mizuho analysts.
The analysts say that higher-than-expected inflation data due out later today could prompt the Fed to act. They expect the Consumer Price Index to rise 3.3% in July from a year earlier, up from 3.0% in June.
“While the end of the Fed’s hiking cycle is near, upside risks to the inflation outlook still need to be considered by the Fed,” the analysts said.
They also noted that the Fed has signaled that it is willing to raise rates more than once in September if necessary.
The market is currently pricing in a 60% chance of a rate hike in September, according to the CME Group’s FedWatch Tool.
However, some analysts believe that the Fed will ultimately decide to hold off on a rate hike in September. They argue that the economy is already slowing and that another rate hike could tip it into recession.
“The Fed is facing a difficult balancing act,” said Michael Feroli, chief economist at JPMorgan Chase. “It needs to raise rates enough to cool inflation, but it doesn’t want to raise them so much that it hurts the economy.”
The Fed is scheduled to meet on September 20-21. It will release its latest economic forecast and interest rate decision at the end of the meeting.
In the meantime, markets will be closely watching the inflation data due out later today. If the data comes in hotter than expected, it could increase the chances of a rate hike in September