Fed's Next Rate Hike: What to Expect?

Fed's Next Rate Hike: What to Expect?

2022-08-04 • Updated

The US central bank will lift interest rates at its next meeting on Wednesday, July 27. We'll watch if the Federal Reserve goes with a 75-basis-point or a 100bp hike. Several factors influence the Fed's decision. In theory, the Fed's goal in using a rate hike tool is to tame inflation without causing a recession.

Factors that affect the Fed's decision

To decide on the appropriate rate hike, FOMC members will look at the key inflation metrics such as the Consumer Price Index (CPI) and the indicators of economic growth such as employment numbers to get a better view of the economy.

1. Inflation

The Consumer Price Index (CPI) measures the daily inflation of products and services. The change in this indicator shows how higher/lower prices were during the previous month. Inflation in the US continues to surprise everyone after the last reading came above expectations and jumped to 9.1% in June (the highest level in 40 years), compared to 8.6% in May.


Inflation will continue to heat up and is expected to remain elevated in the coming months. It might prompt the Fed to continue raising rates. However, it won't need to raise rates at a more aggressive pace than the current one. There are tentative signs that inflation might start to calm down relatively, and we are on the cusp of a shift in price growth.

The reasons are lower energy and oil prices. In addition, wage growth has cooled from an elevated level early this year because companies are now halting/slowing hiring to counter the rising prices. With lower commodity prices - particularly food and base metals - price growth may calm slightly.

Gasoline prices are unlikely to continue falling, with the prospect of oil rising again. But a broader decline in commodity prices should help reduce pressures on core inflation.

2. Strong and stable Labor Market

Robust US unemployment data may serve as an argument for the Federal Reserve to raise rates further. Nonfarm payrolls increased by 372K in June, but the unemployment rate remained at 3.6%, defying fears of recession. The June employment report indicates that the US economy is neither on the cusp of recession nor is overheating. 


However, despite the strong US labor market, the Fed won't risk accelerating rate hikes, fearing that efforts to contain inflation, if excessive, will lead to a recession and a sharp increase in unemployment. Raising rates may cause a slowdown in the economy and will likely lead to increased unemployment over time.

When will the Fed raise rates? And by how much?

Bets to hike rates by a whole percentage point increased after inflation in America surged to 9.1%. Higher rates should cool the raging prices. However, concerns about the impact of rate hikes on the US economy may limit the rate increase by 75 basis points.

Overall, the market is ready for a 75-point hike. If the Fed signals slower rate increases in the future, the USD may slip versus other major currencies, while the US500 will get a boost.



Can USD Recover?
Can USD Recover?

The EUR/USD pair is making gains, approaching multi-month highs around 1.0960, driven by a weakened USD and Christine Lagarde's somewhat hawkish remarks before the European Parliament. Minor housing data from the U.S., specifically New Home Sales for October, came in below expectations but didn't significantly impact the pair. Lagarde, President of the...

CPI Release Will Boost The CAD
CPI Release Will Boost The CAD

Canada's forthcoming Consumer Price Index (CPI) data, set for release on Tuesday, is projected to show a year-on-year decline in inflation to 3.2% for October from the previous 3.8%. This potential inflation dip might offer leeway for the Bank of Canada (BoC) to maintain its overnight rate target at 5.0% in the...

Can JPY Reach New Lows By the End of 2023? 
Can JPY Reach New Lows By the End of 2023? 

Speculation persists regarding the Bank of Japan's potential departure from negative interest rates, yet the USD/JPY maintains its position within a 150–152 range for seven consecutive sessions. Caution is warranted due to a weaker-than-expected Q3 GDP, a slump in imports, and...

Latest news

Is Bitcoin Set to Drop?
Is Bitcoin Set to Drop?

Bitcoin's price remains stagnant despite the Fed's slightly less hawkish tone. In contrast, Bitcoin has outperformed other assets, doubling in price from $16K to nearly $38K this year. Improved fundamentals, including the resolution of Binance concerns...

Top Three Trade Ideas for December 2023
Top Three Trade Ideas for December 2023

Hey folks, it’s a wrap to yet another month in the 2023 calendar, and I’m guessing you know what that means - time for another episode in the “What To Trade” series. For December, I will be mapping out trade more cautiously as the market volatility often drops

Gold Breaks To New Highs. What Is Expected In December?
Gold Breaks To New Highs. What Is Expected In December?

Gold prices, reaching the highest since May 5, are consolidating as traders await the US PCE Price Index, a key inflation indicator. The upcoming data could impact the Fed's policy, influencing the demand for the US Dollar and providing direction for gold. The Greenback sees some repositioning, recovering modestly ahead of the data risk.

Deposit with your local payment systems

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.


A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera