‘Ugly’ inflation report could get Fed to raise rates by 75 basis points

Dismal May inflation report has some Wall Street economists betting Fed will raise interest rates It rose 75 basis points in June or July as policymakers tried to rein in runaway consumer prices.

Most traders are already pricing in an 80% chance of a 0.5 percentage point rate hike during the Fed’s June meeting, according to data from CME Group, which tracks trading.

20% more Traders see more aggressive Fed action An increase of 75 basis points was the first since 1994.

The odds of a massive rate hike in July are even higher, with more than 50% of traders expecting a 75 basis point hike.

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Fed Chair Jerome Powell Inflation

In this Jan. 29, 2020, file photo, Federal Reserve Chairman Jerome Powell pauses during a news conference in Washington. (AP Photo/Manuel Balce Ceneta, File/AP Newsroom)

New forecasts follow Sizzling Labor Department Report That showed the consumer price index, a broad measure of the price of everyday items including gasoline, groceries and rent, rose 8.6% in May from a year earlier, faster than expected. Prices rose 1% in the month from April.

it marks Inflation is the fastest Since December 1981.

Inflation hit 40-year high in May, consumer prices surged 8.6%

The latest inflation data also prompted Barclays economists to update their forecasts, expecting a 75 basis point rate hike at the Federal Reserve’s policy-setting meeting scheduled for next week.

“The Fed now has every reason to surprise the market with a more aggressive-than-expected June rate hike,” strategists led by Jonathan Miller wrote in a note Friday. “We realize this is a close call. decision, it could be in June or July. But we are changing our forecast to call for a 75 basis point hike on June 15.”

inflationary food shopper

Shoppers line up to check out at a Costco Wholesale store in Orlando. (Paul Hennessy/SOPA Images/LightRocket via Getty Images/Getty Images)

Federal Reserve Chairman Jerome Powell The company rejected the possibility of raising rates by 75 basis points in early May after a meeting of policymakers voted to raise rates by half a percentage point. Officials said a half-percentage-point rate hike would take place in June and July, but it was unclear how Friday’s report would affect that.

“The committee is not actively considering an increase of 75 basis points,” Powell told reporters at a post-meeting news conference.

Federal Reserve Chairman Jerome Powell

Federal Reserve Chairman Jerome Powell speaks during a news conference after the Federal Open Market Committee meeting on May 4, 2022 in Washington, DC. (Al Drago/Bloomberg via Getty Images/Getty Images)

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But that was ahead of the April and May inflation reports, both of which were hotter than expected, underscoring how strong inflationary pressures remain in the economy.Bond yields soar, stocks tumble Worse-than-expected report raises concerns The Fed will have to step up its inflation war.

“What an ugly CPI data. Not only was it better than expected on almost every front, but the pressure on the sticky parts of the market was evident,” said Seema Shah, chief strategist at Principal Global Investors. “The Fed’s resolve for price stability will now be put to the real test. Interest rates need to be relentlessly aggressive until inflation finally starts to subside, even as the economy struggles.”

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