We believe there is a 50% probability that the Fed will raise its Fed Funds target range by 100 basis points when the FOMC meets on September 20th and 21st. 50% probability of a 100 basis point increase, 40% probability of a 75 basis point increase, 10% probability of a 50 basis point increase.

• July 27th 2022 FOMC meeting: The Fed raised its Fed Funds target range by 75 basis points to 2.25-2.50%.
• The FOMC did not meet in August.
• July CPI released August 10th 2022: Core Inflation came in at 5.9% year-over-year while Headline CPI came in at 8.5%. Both numbers are multiples higher than the Fed’s 2% CPI target.
• August 26th 2022: Fed Chair Powell talked tough during his 8 minute Jackson Hole speech.
• September 13th 2022 – August CPI to be released: We expect Core Inflation to come in higher than July’s 5.9% print.
  • Core Inflation is the key. Given that the FOMC did not meet in August, given that the 2-Year Treasury yield sits at approximately 3.40%, and if August Core CPI comes in higher than July’s 5.9% print, we can see the Fed moving its Fed Funds Rate 100 BPS higher, which would put the target range at 3.25-3.50% – approximately in-line with the 2-Year Treasury yield (which is where the Fed ought to be).

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