Looks Like Just a Quarter-Point Fed Hike Up Next

As inflation eases, investors think the central bank’s next move will be small.

Inflation is cooling, as the Consumer Price Index report for December shows: dipping to 6.5% annually, from 7.1% the month before. And so are expectations for just a minimal increase in the Federal Reserve’s benchmark interest rate, when its policymaking body announces its latest action February 1.

A month ago, the futures markets predicted that the Fed would boost the rate by half a percentage point at the upcoming meeting. But now, the betting is for just a quarter-point.

This follows an aggressive regimen of increases that began in March 2022, including four consecutive 0.75-point boosts, ending in November. Then came a downshift.  The most recent hike, in December, was for a half-point.

Several Fed officials have voiced public support for a small increase. Mary Daly, president of the San Francisco Fed, said on Monday that the central bank is considering a quarter-point—as she also warned that now is “really too soon to declare victory” over inflation. She reflected her colleagues’ views, as expressed at the last Fed meeting’s member poll, called the dot plots, that the rate would exceed 5%, once raises beyond the one in February occur. It now hovers between 4.25% and 4.5%.

Thomas Barkin, head of the Richmond Fed, last week suggested that a small rise was warranted. James Bullard of the St. Louis Fed and Raphael Bostic, from Atlanta, also indicated last week that policymakers should move at a more measured pace.