Fed Decision Due Overnight: Markets Price a 25 bp Hike, Focus Shifts to the Policy Rationale

BlockBeats reports that the Federal Reserve's FOMC will release its rate decision and updated economic projections at 2:00 a.m. Beijing time on Thursday, followed by a monetary policy press conference led by Chair Jerome Powell. Market pricing points strongly to another quarter-point move. CME FedWatch shows a 95% implied probability of a 25-basis-point hike this week, while the probability of a hike in December has climbed to 70%. Prediction market data from predict.fun similarly assigns an 88% chance to a 25-basis-point increase tomorrow, versus 12% for no change. The backdrop has turned more complicated. U.S. job growth in August beat expectations, headline CPI accelerated to 3.4% year over year, and renewed energy-price shocks have added uncertainty to the inflation outlook. The 10-year U.S. Treasury yield is closing in on 5%, keeping the dollar and perceptions of the Fed's independence on traders' radar. Beyond the binary question of whether the Fed hikes, investors are increasingly focused on whether the central bank's reaction function has shifted. ING argues the baseline may have flipped: rather than holding steady unless data forces tighter policy, the Fed may now be inclined to hike unless the data is strong enough to justify a pause. ING Chief International Economist James Knightley, U.S. Research Head Padhraic Garvey, and Global Markets Head Chris Turner expect a 25-basis-point hike on September 16, framing it as a policy "recalibration" rather than the start of a fresh sequence of back-to-back increases. Deutsche Bank strategists take a more aggressive view, expecting the first of three hikes to begin in September, with additional moves penciled in for October and January. While the Fed may avoid explicit forward guidance, the dot plot is widely expected to skew hawkish.