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The Federal Reserve is expected to raise interest rates by a quarter percentage point next week, despite turmoil in the banking industry and uncertainty ahead. Many experts expect the rate on Wall Street to rise by a quarter percentage point. The expectations for interest rates have been on a rapid swing over the past two weeks, ranging from a half-point hike to holding the line and even at one point talk that the Fed might be willing to reduce rates. However, a consensus has emerged that Fed Chairman Jerome Powell and his fellow central bankers will want to signal that while they are attuned to the financial sector upheaval, continuing the fight to bring down inflation is essential. That likely will take the form of a 0.25 percentage point, or 25 basis point, increase, accompanied by assurances that there’s no preset path ahead. The outlook could change depending on market behavior in the coming days, but the indication is for the Fed to hike.
“They have to do something, otherwise they lose credibility,” said Doug Roberts, founder, and chief investment strategist at Channel Capital Research. “They want to do 25, and the 25 sends a message. But it’s really going to depend on the comments afterward, what Powell says in public. … I don’t think he’s going to do the 180-degree shift everybody’s talking about.” Markets largely agree that the Fed is going to hike. As of Friday afternoon, there was a 75% chance of a quarter-point increase, according to CME Group data using Fed funds futures contracts as a guide. The other 25% was in the no-hike camp, anticipating that the policymakers might take a step back from the aggressive tightening campaign that began just over a year ago. Goldman Sachs is one of the most high-profile forecasters seeing no change in rates, as it expects central bankers in general “to adopt a more cautious short-term stance in order to avoid worsening market fears of further banking stress.”