Freedom Broker: the probability of a Fed rate hike in September is 5%

Experts at Freedom Broker believe that the U.S. Federal Reserve is likely to keep the interest rate unchanged at the September 15–16 meeting. In their estimate, the probability of a hike is about 5%, although the futures market is pricing in 65%.

What the “Beige Book” showed

The “Beige Book” is a review of the economic situation in the Fed’s 12 districts that the regulator uses when making interest-rate decisions. The review is released eight times a year, about two weeks before a meeting of the Federal Open Market Committee. It compiles data on consumer activity, the labor market, prices, manufacturing, and business sentiment. The report received its unofficial name because of the beige color of its cover. 

The document published on September 2 presented a mixed picture, Freedom Broker experts believe. Overall price growth remains moderate: its pace was unchanged in eight districts, slowed in three, and increased in only one. 

At the same time, companies report higher costs for energy, transportation, metals, and petrochemical products. Manufacturers and retailers also continue to feel the impact of import tariffs.

The labor market is not yet showing signs of overheating, the analysts note. Employment grew moderately in three districts, slightly in four, and remained unchanged in five. Elevated demand for workers persists mainly in construction, manufacturing, and certain types of services.

Inflation will determine the decision

According to Freedom Broker experts, the “Beige Book” leaves room for a rate hike but does not point to a predetermined decision. Even taking the described price pressures into account, the analyst allows for raising the probability of a policy tightening only to 15%.

The key releases will be the August producer and consumer price indices, due on September 10 and 11. Grounds for a rate hike may emerge if core inflation comes in closer to 0.35% m/m or higher; Freedom Broker expects 0.25%.

Most of the Fed may choose a pause

Freedom Broker expects Beth Hammack, Neel Kashkari, and Lorie Logan to support a rate increase. However, most voting members of the Federal Open Market Committee are likely to back keeping current policy in place in the absence of an unexpected spike in inflation.

This is not an individual investment recommendation.