Inflation data and rapid shifts in views in financial markets last Monday opened the door for an interest rate hike of 0.75 percentage point, higher than expected earlier, as Federal Reserve System officials ( Fed, the American Central Bank) to meet starting this Tuesday (14).
It’s a move officials had played down in recent weeks as the two-day meeting approached, but which they may now be ready to take in response to data that has yet to show progress in containing the pace of price increases.
The growing possibility of a surprise move was reported on Monday by the Wall Street Journalhelping to further push forward trading in futures contracts linked to the Fed’s policy in that direction.
Fed officials have not spoken publicly since the start of their quiet period on June 4, and before that they said they were leaning towards a second 0.5 point increase at the June 14-15 meeting.
But that outlook was conditioned, as Fed Chair Jerome Powell said in his May press conference, “on the evolution of economic and financial conditions in line with expectations.”
“Expectations are that we will start to see inflation stabilizing.”
This did not happened.
Instead, Labor Department data released last Friday showed consumer price inflation accelerating in May to 8.6% year on year.
An alternative move by the Cleveland Fed that the US central bank is tracking has also accelerated, a sign that price pressures are broad and not limited to groups of goods or services with particularly large price increases.
Meanwhile, on Friday and Monday, a series of measures of inflation expectations shifted in the wrong direction for a Fed that said it was particularly sensitive to losing control of public psychology around price pressures.
Markets throughout Monday quickly adjusted, with traders in interest rate-linked contracts betting almost certainly on a 0.75 point increase, which would be the first increase of this magnitude since November 1994.
The decision will be announced after the meeting closes on Wednesday, after what will likely be a full debate on the risks that faster rate hikes could push the economy into a recession, and the risks they could pose to its own credibility. the Fed, after focusing heavily on 0.5 point increases as appropriate for now.
Source: CNN Brasil
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