Bassanese Bites: Fed to hike 75bps – June 14 2022

Global Markets

Friday’s hotter than expected U.S. consumer price index report was the major event last week and has clearly rattled markets. Headline CPI inflation rose by 1% versus market expectations for a 0.7% gain, while core inflation was only a bit higher than expected (at 0.6% versus market expectation for a 0.5% gain). The bottom line: U.S. inflation remains stubbornly high and markets now anticipate the Fed will need to do more, even at the risk of a recession.

The highlight this week is the Federal Reserve meeting. This will include updated economic forecasts and a new “dot plot” for the expected path of the Fed funds rate.

Following overnight media reports, it now seems likely the Fed will raise rates by a whopping 0.75% at this week’s meeting – just to assure markets that it is not falling (further) behind the inflation curve. Markets now anticipate the Fed could hike rates to 4% by mid-2023!

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