Expect four instead of three rate hikes, says economist

Finance


The Federal Reserve is likely going to turn more aggressive than it is currently indicating, with more rate hikes than expected coming this year, according to an economist on Tuesday.

“The Fed’s got to worry about A: falling behind the curve and letting inflation get out of control; B: tightening too hard and pushing the economy into recession. This is a very delicate balance,” Peter Hooper, chief economist at Deutsche Bank Securities.

Although the Fed has said it was going to be gradual with its tightening, it will need to speed things up due to good growth, Hooper told CNBC at the Deutsche Bank Access Asia conference in Singapore.

He said the Fed will likely indicate a shift next month at the Federal Open Market Committee meeting, predicting four instead of the three rate hikes expected.

That view coincides with market sentiment, according to CME’s FedWatch tracking tool for the fed funds futures market.

Futures contracts are currently implying a funds rate of 2.21 percent — from the current range of 1.5 percent to 1.75 percent. According to the CME, that translates into a 51 percent chance of a December rate hike, which would be the fourth of the year.

The Fed already approved one quarter-point hike, in March.

Futures trading indicates a 95 percent chance of a June increase — the probability had been 100 percent as recently as last week — and an 81.4 percent likelihood of another move in September.

CNBC’s Jeff Cox contributed to this story.



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