BNP Paribas economist suggests US may need three Fed rate hikes

BNP Paribas economist Mateos y Lago has suggested that the U.S. economy might require three interest rate hikes by the Federal Reserve, beginning as soon as next week. This perspective diverges from the prevailing expectation among economists that the Fed will maintain steady rates. Currently, the federal funds rate is between 3.50% and 3.75%, with the effective rate at 3.63%. BNP’s projection for multiple hikes introduces a more hawkish stance compared to the consensus, which could influence market expectations for tighter monetary policy. In response to these comments, prediction markets reflected an increased likelihood of a rate hike at the upcoming September meeting, with odds for a September 15-16 rate hike rising to 59.5% from 54% just 24 hours earlier. Similarly, the odds for an October rate hike have also risen, indicating that market participants are adjusting their expectations in light of the possibility of more aggressive Fed actions. The potential impact of these rate hikes is significant for assets sensitive to interest rates and the U.S. dollar. The remarks from BNP Paribas come at a time when markets are closely monitoring U.S. monetary policy, particularly as infl...