Clarida predicts Fed interest rate hike in December and possible new rate hike in March

Former Vice President of the Federal Reserve Richard Clarida expects the US central bank to raise interest rates in December and, depending on the data, to do so again in March. The assessment was given on Bloomberg Television, on the program "Bloomberg Surveillance: The Fed Decides".

According to Clarida, this is the scenario that he and his group have been working on: the Fed would go in December and, depending on the flow of indicators, could act again in March. According to the former leader's calculations, this would add up to three increases in total, and the cycle would end there.

A scenario against the “one and done” bet

In the conversation, the presenter recalled that Williams, who has been quite explicit on the topic, works with the "one and done" hypothesis as his best guess. A probability of 1 in 10 was also cited, without the transcript making it clear what this refers to. Clarida was asked about his own guess and replied that the most likely trajectory includes at least the December high and a possible second in March.

His reading is that the movement would recover the cuts made in 2025. At the time, according to Clarida, these cuts were seen as risk management measures, because the job market seemed to be deteriorating sharply.

The job market and the comfort of the committee

The former vice president's central argument is that the concern that motivated those reductions has lost strength. Clarida stated that labor market data show stable or negative readings, but that this does not replicate previous fears of a collapse in employment. Without this fear of risk management, he said, the committee has room to resume the increase.

For Clarida, the Fed committee currently has a level of comfort with this path and probably sees the three hikes as the final destination of the cycle. This is a personal assessment by the former leader, and not an official signal from the monetary authority.

The presenter also raised, throughout the program, doubts about nominal GDP, which according to him is at a high level, and asked what premises support the view that this indicator will slow down. He also questioned investment in capex and the pace of spending by technology giants, topics that remain open to debate.

For investors, the message is that the debate about the end of the American interest cycle remains divided between those who see a single increase and those who project three. This design affects expectations for long interest rates, the dollar and the appetite for technology stocks, such as those listed on the Nasdaq. It is important to monitor the next employment and inflation indicators, which should guide the committee's decision.

Automatically translated from Portuguese.