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Why the Fed won’t surprise markets with an early rate hike

By Joseph Toppe

19:40, 19 January 2022

Jerome Powell
Federal Reserve chair Jerome Powell - Photo: Fed Reserve

Despite inflation running at a 40-year high and a recent call for a more aggressive strategy, the US Federal Reserve is not expected to increase rates more than 25 basis points in March.

However, the Fed is predicted to hike rates again in June, September, and December.

Last month, the 12-member Federal Open Market Committee (FOMC) announced the US central bank would begin reducing its purchases of Treasury bonds by $10bn (£7.6bn) a month and mortgage-backed securities by $5bn, which could end the stimulus program by June 2022.

No hikes here

To combat their own rising inflation, the Polish Central Bank pushed the European country's main rates to 50 basis points (bps) this month, while hedge fund manager Bill Ackman tweeted on 15 January the US central bank could “restore its credibility with an initial 50 bps move to shock and awe the market.”

Bill Ackman's tweetBill Ackman's tweet - Photo: Twitter

In an interview with, Kathy Bostjancic, director of US Macro Investors Services at Oxford Economics, said “chances are less than 5% the Fed would go higher than 25 bps in March.”


1.25 Price
-0.650% 1D Chg, %
Long position overnight fee -0.0061%
Short position overnight fee -0.0021%
Overnight fee time 21:00 (UTC)
Spread 0.00110


1.07 Price
-0.510% 1D Chg, %
Long position overnight fee -0.0096%
Short position overnight fee 0.0014%
Overnight fee time 21:00 (UTC)
Spread 0.00018


174.31 Price
+0.210% 1D Chg, %
Long position overnight fee 0.0085%
Short position overnight fee -0.0168%
Overnight fee time 21:00 (UTC)
Spread 0.090


139.99 Price
+0.820% 1D Chg, %
Long position overnight fee 0.0105%
Short position overnight fee -0.0188%
Overnight fee time 21:00 (UTC)
Spread 0.040

“A 50-bps rise in rates would be too aggressive,” she continued. “It would instill panic among investors, surmising the Fed thinks they are behind on tightening policy to cool the inflation.”

Should the US central bank surprise Bostjancic in March by upping the rate hike to 50 bps, she said the move “would unnerve global financial markets.”

“Bond yields, led by the short-end, would rise sharply, while risky assets like equities would sell off, leading to tighter financial conditions.”

Read more: US mid-day: Stocks wobble after red Tuesday

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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