September Rate Pause Odds Soar As Wall Street Economists Forecast Weaker Outlook

While Fed Chair Jerome Powell did not rule out another increase in interest rates, investors’ bets on a pause at the Federal Reserve’s September meeting surged to an 81.5% probability on Tuesday, the highest recorded thus far.

The prevailing sentiment among Wall Street economists suggests a pause in rate hikes during the Fed’s meeting in September, according to Bloomberg.

Fed officials have emphasized their reliance on incoming data to determine their next steps regarding rate adjustments. However, since the July meeting, economic data has been pointing towards a potential pause.

The disappointing July manufacturing activity data reported by the Institute for Supply Management (ISM) and a decline in job openings have been driving expectations higher for an interest rate pause. A decline in the number of job openings also indicated a potential softening in labor market conditions, ahead of crucial jobs data this week.

Current market predictions place the likelihood of a September rate hike at 18.5%.

Upcoming Inflation Data and Concerns Over Student Loan Payments

Mild inflation data expected before the September 19-20 meeting, along with potential challenges like the recommencement of student loan payments, are seen as reasons to justify a temporary pause in rate hikes, according to economists screened by Bloomberg’s reporter Steve Matthews.

Douglas Porter, the chief economist at Bank of Montreal, believes the incoming data will align with the Federal Reserve’s expectations. He suggests that the current state of short-term rates, decreasing core inflation, and a softening labor market indicate that the Federal Reserve’s actions have been sufficient.

The Federal Reserve may also be cautious due to the impending resumption of student loan payments in October. Economists at PNC Financial Services Group estimate that these payments, averaging $350 to $400 per month for nearly 27 million borrowers, could negatively impact consumer spending.

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