A stronger US jobs report in July has opened the door for a full percentage point interest rate hike at the September policy meeting, according to Citigroup economists.
Citigroup strategists led by Andrew Hollenhorst said in an analyst note on Monday that a surprising jump in employment and faster wage growth made a 75-basis-point hike possible and raised the potential for a bigger increase, of 100 basis points.
An increase of 100 basis points would be the first since 1994 if the Federal Reserve (Fed) decided to do so, and it would put the benchmark range between 3.25% and 3.50%.
However, Citigroup said their baseline expectations remained for a 75-point increase in September, but if there was a 100-point increase, they would not be surprised if core inflation was stronger than expected.
Investors now see a 70% chance of another sizeable hike in the fall, according to CME Group's FedWatch tool, which tracks trades.
The Fed raised rates by 75 basis points for the second time in a row in July and signaled another 'extraordinary' increase in September as it remained committed to returning inflation to its 2% target.
However, the decision made will depend on the economic data released. So far, the July jobs report has shown stronger growth and investors' focus is now turning to inflation data which is expected to decline from the previous month.
