Fed Seen Extending Steep Rate-Hike Path to Cool Heated Inflation
May’s red-hot inflation hardened expectations the Federal Reserve will keep raising interest rates in half-point steps through September, with talk of an even larger move creeping into the conversation.
Investors increased bets on a 75 basis point hike after data Friday showed consumer prices accelerating to a fresh 40-year high, though Fed watchers doubt Chair Jerome Powell would take that step.
“Even in these fast-moving times, the Fed is likely to be reluctant to surprise markets, which keeps the chance of a 75 basis point surprise at next week’s meeting small,” said Sarah House, senior economist at Wells Fargo & Co. “However, we could see Chair Powell at the post-meeting press conference more clearly signal that 75 basis point hikes are on the table for future meetings if we don’t see a let up in inflation.”
Powell will hold a press conference after the conclusion of the Fed’s two-day meeting on Wednesday. He’s already put half-point moves on the table for this month and next and said officials will keep pushing until they see “clear and convincing” evidence prices are cooling.
There was scant sign of that in Friday’s data. The consumer price index increased 8.6% from a year earlier in a broad-based advance. Core CPI, which strips out the more volatile food and energy components, rose 0.6% from the prior month and 6% from a year ago, also above forecasts.