Nick Timiraos: Markets Brace for First Fed Rate Hike in Three Years, But a Single Move Won't Tame Inflation

BlockBeats reported on Sept. 12 that Nick Timiraos, often dubbed the Fed's "whisperer," wrote that investors have largely settled on an interest-rate increase at the Federal Reserve's meeting next week—the first hike in three years—with the bigger uncertainty being what follows. Few officials at the Fed believe a single 25-basis-point move would be enough to bring inflation under control. A hike next week would amount to an admission that policy had been set too loose, while also underscoring that one increase would not resolve the problem. Since the 1990s, the Fed has delivered only one true "one-off" rate hike. Walsh said in July he did not think the Fed was adept at "fine-tuning," and analysts argue that a chair skeptical of fine-tuning is unlikely to lift rates by 25 basis points and then declare victory. Last month, Walsh said there is little evidence that tighter borrowing conditions are restraining economic activity. If that view is cited to justify raising rates, markets are likely to press for clarity on how far rates may need to rise. Without clearer guidance, investors could read a hike as the start of a broader tightening cycle. As a result, investors no longer treat the September meeting as a one-and-done event. Markets now price in at least three rate hikes by June next year, up from a prior expectation of two.