A forecaster who accurately predicted the Federal Reserve’s most recent rate hike now says a larger increase—by 0.5 percentage points—could occur in December.
Jason Schenk, president of Prestige Economics, said he believes the Fed is unlikely to raise its benchmark interest rate at this month’s meeting. Instead, he expects the central bank will give the September rate hike “some breathing room” before considering a more substantial move in December.
“By December, if inflation hasn’t been brought under better control after the September hike, they might opt for a 50-basis-point increase instead of 25, to more effectively manage inflation,” Schenk said.
To combat rising inflation, Federal Reserve Chair Kevin Warsh shifted monetary policy toward tightening last month—the first rate hike since 2023.
Although many economists anticipated the move weeks ahead of the September meeting, Schenk was the first economist in a Bloomberg survey conducted in June to forecast a rate increase. Prestige Economics, the firm where Schenk writes his forecasts, has consistently ranked among the top performers in Bloomberg’s foreign exchange forecasting rankings.
Recent discussions among traders and economists have focused on whether the Fed will raise rates by another 25 basis points this month or delay action until December. Swap markets have already fully priced in a 25-basis-point hike in December.
Consumer inflation ran higher than expected due to surging fuel prices, pushing the probability of an October rate hike above 50% in futures markets, though that figure declined on Wednesday.
However, Schenk argues the Fed won’t have enough information to act further at the October meeting, as much of the data released on Wednesday was collected prior to the September rate hike.
“I don’t think the current data points are sufficient to give them the confidence they need,” Schenk said.
Meanwhile, between October and December meetings, Fed officials will receive two additional employment reports and another CPI update, which could inform their future decisions.
“It’s only six weeks away, but they’ll get more data,” Schenk said. “If they find that a 25-basis-point adjustment isn’t effective, I believe they might go with a 50-basis-point move.”
Schenk expects that if the December hike is larger, the Fed may pause further increases early next year; however, if the December increase is smaller—just 0.25 percentage points—another rate hike in the first quarter of next year would be “very likely.”
