Every day seemingly brings more anticipation of the Fed raising rates — with inflation at a 39-year high, some economists and officials are predicting not one but four rate hikes before the end of the year.
Why Goldman and Citigroup Are Betting on a Quarter-Point
But analysts from two of the country's major banks believe that such a large increase is not particularly likely, Bloomberg first reports.
After the frenzy around the Labor Department news died down, swaps markets placed the odds back to 32% on Friday.
In a note to investors, Citigroup analysts Jabaz Mathai and Jason Williams said that "although the pricing for a 50bp (basis points) move is likely to stay sticky," a quarter-point increase is much more likely.
Analysts from Goldman also placed their bets on a quarter-point increase, arguing that doing so would benefit the economy more at a time when many are betting otherwise.
For those who want to bet against a half-point increase, one option is to sell the December overnight rate index swaps and then buy the June ones.
Can a Half-Point Increase Happen?
Still, there are reasons to be prepared for larger hike jumps.
Atlanta Fed President Raphael Bostic previously told the Financial Times that the first increase in March could be as high as a half percentage point (quarter-percentage increments are customary) if the inflation currently gripping the country does not improve.
This scenario reached a fever pitch on Friday after the Labor Department reported that hourly wages rose 0.7% in January and 5.7% in the year amid an improving job market.
As the report came out, swaps markets placed the odds of a half-percentage point increase at 50%.
"Every option is on the table for every meeting," Bostic told FT in late January.
