Why Traders Are Betting the Fed Could Make a Historic Move This Month

History may not repeat itself, but it does often rhyme. I’m Phil Rosen, and today we’re breaking down what could be the largest Fed rate hike in decades. 

The last time the US central bank made a 100-basis-point rate hike, Paul Volcker ran the show. He’s the really tall guy who smoked cigars, and he famously curbed historic inflation in the early 1980s — and also sent the US into a steep

recession

. 

So yes, he got sky-high prices under control, but his policy maneuvers had consequences. It’s a similar situation facing Jerome Powell today.  

Let’s break down who expects the rhyme to get under way…

1. Traders think there’s a significant chance the Fed makes a historic move this month. Expectations have jumped for the central bank to make its first 100-basis-point rate hike in decades, and Fed Fund futures contracts fluctuated wildly yesterday.

The odds of a 1 percentage point hike were at 83% early Thursday, but later dropped to about 45% following comments from Fed Governor Christopher Waller. 

“We don’t want to make snap policy decision based on some knee-jerk reaction to what happened in the CPI report,” Waller said. 

The Fed now has no choice but to get aggressive with rate hikes, according to economist Mohamed El-Erian. He said a 100-basis-point hike remains on the table for the July 26-27 meeting.

“Have no doubt: the latest inflation numbers are indicative of rough seas ahead, particularly for the most vulnerable segments of society in the US and around the globe,” El-Erian said.

And through it all, stocks are probably in for more pain. One day after revising its recession forecast, Bank of America yesterday slashed its S&P 500 forecast to 3,600 — the lowest on Wall Street.

“Equities are not adequately discounting a recession if we are already in one,” BofA said.

In other news:

2. US stock futures rise early Friday. Elsewhere, data shows China’s economic growth has slowed sharply in the second quarter of the year. Meanwhile, Pinterest shares soared as much as 20% in premarket trading, after the Wall Street Journal reported Elliott Management has accumulated a stake of over 9% in the company. Here are the latest market moves.

3. More banks on deck today: Wells Fargo, Citigroup, and more, all reporting. Plus, look out for June’s advance monthly sales for retail and food services data, expected from the US Census Bureau this morning. 

4. RBC recommends these stock picks as the risk of recession rises. “Defensive” stocks are getting overpriced, analysts at the firm said, so these growth stocks present better potential as long-term winners. See the list of 29 names here. 

5. Treasury Secretary Janet Yellen said inflation is “unacceptably high,” and a cap on Russian oil prices could be the best hope at taming it. As CPI in June accelerated to a 41-year high, policymakers are focused on controlling energy costs which have been driven by Russia’s wartime maneuvers, according to Yellen. But some analysts worry that a price cap would only cause Moscow to retaliate and send crude soaring.

6. Russian oil arrived in Cuba as Moscow continues to seek alternative buyers for its shunned supplies. An oil tanker carrying 700,000 barrels of Russian oil docked in Cuba Thursday, Reuters reported. All told, the ship’s cargo is worth roughly $70 million at the current market price.

7. Two of Wall Street’s biggest banks missed on earnings Thursday. Both JPMorgan and Morgan Stanley fell short of analysts’ expectations, led by weakness in investment banking. Plus, CEO Jamie Dimon sounded the alarm on global growth.

8. A 33-year-old real estate investor who acquired 22 units in five years explained her strategy. She separates her business into three phases: acquisition, stabilization, and optimization — and each step helped her scale up her operations quickly.

9. Now is the time to buy the dip in these energy stocks, according to a hedge fund manager who’s defined the market by staying afloat in 2022. Harris Kupperman isn’t concerned that stocks in the energy sector are cratering as oil demand stays resilient in the face of a downturn. These are the five picks he’s keeping an eye on.

10. Cannabis stocks jumped after a report that Senate Democrats are set to introduce a bill for federal decriminalization. Shares of Tilray jumped as much as 20%, Aurora Cannabis spiked 10%, and Canopy Growth climbed 7%. Here’s everything you want to know.

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Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.