Live Markets-A rate hike shouldn't derail the market or the economy

Main US equity indexes red; Dow and Nasdaq down 0.8%

Consumer Discretionary is weakest S&P 500 sector; energy leads gainers

Dollar gains; US crude up >4%; gold slips; bitcoin falls >3%

US 10-year Treasury yield hits 5.041%, highest since 2007, now ~5.0%

With the Federal Reserve's next decision on interest rates just a day away, traders are looking very confident that the central bank will hike rates by 25 basis points to a range of 3.75% to 4% at its policy meeting.

As per the latest data from CME Group's FedWatch tool, investors are pricing in a greater than 92% probability for a September hike, up from 59% a week ago. FedWatch also shows traders expect at least one more rate hike by December.

The recent jump up in rate expectations has caused volatility in markets but Brock Weimer, an investment strategy analyst at Edward Jones, had some relatively soothing things to say in an email on Tuesday.

Weimer notes that labor-market conditions appear "substantially more balanced" with job openings modestly exceeding the number of unemployed workers in July versus roughly two openings for every unemployed worker in March 2022. He said that in 2022, this "likely contributed to elevated wage growth and broader inflationary pressures."

But today with the labor market more balanced and nominal wage growth slower, he suggests that labor demand "is no longer providing the same degree of inflationary pressure."

The analyst notes that "core inflation remains uncomfortably high" and that renewed energy-price pressures could slow progress on inflation, but that inflation still "has moderated considerably from its 2022 peak."

So against such a backdrop, Weimer writes that he expects "any renewed Fed tightening to be limited in scope and duration."

"Importantly, we do not expect a modest additional increase in interest rates to derail the broader economic expansion or the equity bull market," he said.