Last week, more than two-thirds of economists polled by Reuters expected the Federal Reserve to leave rates alone at the September meeting.
This week, 86 of 101 economists surveyed after Friday’s inflation report, an 85 percent majority, expect a quarter-point increase to 3.75 to 4.00 percent. Fed funds futures put the probability around ninety percent, and CME’s FedWatch tool has since moved above that. It would be the first increase since July 2023. Goldman Sachs, JPMorgan, HSBC and Deutsche Bank had all already reversed and moved to forecasting a hike.
Nothing about the American economy changed between those two surveys. What changed was one inflation print, landing on top of a much stronger than expected jobs report, with crude above $100 a barrel underneath both. The ten-year Treasury yield breached five percent for the first time since October 2023 before settling just below. The dollar index rose to near a two-week high.
What you are looking at is not a forecast updating. It is a consensus flipping, and those are different things.
A forecast updates when new information shifts a probability a little. A consensus flips when new information gives everybody permission to say what several of them were already thinking but could not defend alone. The cost of being wrong in a crowd is low and the cost of being wrong alone is high, so professional opinion moves in blocks rather than smoothly, and it moves at whatever moment the block decides to go.
Scott Anderson of BMO put the institutional pressure plainly: the Fed has to back up its hawkish rhetoric with real action or risk a much steeper Treasury yield curve. That is not a statement about inflation. It is a statement about credibility, and credibility is the thing central banks are actually managing.
Any operator who has ever changed a price knows this pattern intimately.
Every cafe on your street has been absorbing the same cost increases for months. Every owner has run the same arithmetic and reached the same conclusion, and not one of them has moved, because the first shop to put a flat white up forty cents is the shop everyone talks about. So the street holds, collectively, past the point where holding makes sense.
Then one place does it. Within ten days they have all done it. The street did not get new information in those ten days. It got cover.
This is why waiting to see what everybody else does is a genuinely rational strategy and also a trap. It is rational because the penalty for moving alone is real. It is a trap because when the move comes it comes for everyone at once, which means you carried months of compressed margin in order to arrive at exactly the same place as the shop that went first, minus the months.
The applicable lesson is not to be a contrarian. It is to know which of your decisions are being held hostage by consensus rather than by evidence, and to have the number written down in advance so that when cover arrives you move on the same day rather than the tenth.
Economists polled now expect at least one further hike by the end of March. The BCA analysts think the inflation outlook hinges on oil and that the broader picture does not warrant more than what the curve already prices.
Last week the room said hold. Nobody’s data changed. The room did.
Source: Quartz, “Fed rate hike expected this week after hot inflation data”
