Citadel Securities Expects Warsh to Bring Fed Rate Hike Surprise

English summary

Citadel Securities expects the Federal Reserve to raise interest rates this week, a policy move that would exceed market expectations and strengthen Chairman Kevin Warsh's credibility in fighting inflation. The firm's head of macro strategy, Frank Freight, wrote in a research report that a 25 basis point rate hike on Wednesday would continue to deliver on Warsh's repeated commitment to restoring price stability, while demonstrating that policymakers will no longer signal every policy move well in advance. Freight said the market may again underestimate the magnitude of the shift toward a hawkish stance within the Fed. He believes a rate hike this week would completely end the era of forward policy guidance and highlight the Fed's independent decision-making. Interest rate swap data show the market probability of a 25 bps hike on Wednesday is about 40%. Compared with market patterns in recent years, it is unusual to see such high uncertainty at such a close point to the Fed decision. Traders have fully priced in a rate hike at the September meeting. ...