The earliest forecaster for a September rate hike changes stance: The Fed may directly raise by 50 basis points in December.

Zhihui Finance APP has noted that one of the earliest forecasters to predict the Federal Reserve's latest rate hike now states that a larger increase of 50 basis points could be introduced in December.

Jason Schenker, President of Prestige Economics, said he believes it is unlikely the Federal Reserve will raise rates at this month's meeting. Instead, he expects the Fed may allow the September hike to "take a breather" before potentially implementing a larger raise in December.

Schenker said, "By December, if inflation hasn’t been curbed in a more meaningful way following the September hike, they might opt for a 50 basis points increase rather than 25, taking a bigger bite."

Last month, Federal Reserve Chair Kevin Walsh led the Fed into rate-hiking mode—for the first time since 2023—in an attempt to curb rising inflation.

While many economists anticipated this rate hike in the weeks leading up to the September meeting, Schenker was the first among surveyed economists to predict the move as early as June. Schenker writes forecasts at Prestige, an agency that frequently ranks among the top foreign exchange forecast institutions on the Bloomberg leaderboard.

Recently, traders and economists have focused on whether the Federal Reserve will raise rates by another 25 basis points this month, or save the hike for the December meeting. The swap market has fully priced in a 25 basis points rate increase in December.

With surging fuel costs driving consumer inflation higher than economists predicted, the futures market briefly priced the probability of an October rate hike above 50%, before retreating on Wednesday.

However, Schenker believes the Fed will not have enough information at its October meeting for another move, as much of the data released on Wednesday was collected before the Fed’s September hike.

"In my view, the data points simply aren’t enough to give them the level of confidence they might need," said Schenker.

Meanwhile, between the October and December meetings, Federal Reserve officials will receive two more employment reports and one CPI report, which could inform future policy decisions.

"It’s only a six-week wait, but they’ll get more data," Schenker said. "If they see that 25 basis points didn’t do anything, then I think they might go for 50 basis points."

Schenker anticipates that opting for a larger rate hike may mean pausing further increases at the start of next year; whereas if only a 25 basis points hike is implemented in December, it makes another rate hike in the first quarter of next year "more likely".