US central bank officials signal that they will maintain a 0.75 point high in July

Federal Reserve officials on Friday signaled that they are likely to maintain a 75 basis point interest rate hike through the end of their July 26-27 meeting, although a recent strong inflation reading could still justify hikes. additional, or faster, until the end of the year.

The chairman of the Fed of St. Louis, James Bullard, said the “pressured” inflation reading of 9.1% for June justifies targeting the federal funds rate in a range of between 3.75% and 4.00% by the end of this year, 0.50. percentage point above its target for the end of 2022.

“The Fed has to react by charting a slightly more aggressive course in the second half of this year,” Bullard said at an event organized by the European Economics & Financial Center in London.

But he also said he was indifferent about whether the US central bank should raise interest rates by 0.75 percentage points this month, as some officials have signaled, or a 1 percentage point increase.

“It probably doesn’t make much difference to do 100 basis points here and less in the other three meetings (in 2022) or to do 75 basis points here and a little more in the remaining three meetings of the year,” Bullard said.

In separate comments at a forum hosted by the Tampa Bay Business Journal, Atlanta Fed Chair Raphael Bostic warned against a “too dramatic” move by the central bank because it could undermine strong hiring and other positive trends still seen in the U.S. economy.

While Bostic did not explicitly endorse a 75 basis point hike at this month’s meeting, his comments appeared to steer away from a larger interest rate hike in July.

The remarks were the last before monetary policymakers entered a period of silence in which they must refrain from public speaking in the week before the central bank’s Federal Open Market Committee (FOMC) meeting in Washington.

base scenario

Both Bostic and Bullard reiterated the Fed’s firm commitment to raising interest rates as much as necessary to control inflation, with Bostic saying that “if the economy moves consistently with our 2% (inflation) target, let’s stop. And if you don’t move, we’re not going.”

Futures traders pegged to short-term interest rates shifted their bets firmly in favor of a 0.75 percentage point hike at the next meeting, following comments from the two Fed officials.

Professionals had been leaning for a 1 percentage point jump since the Labor Department said on Wednesday that consumer prices rose at an annual pace of 9.1% in June, the strongest in more than four decades.

On Thursday, Fed Chair Christopher Waller also said that a 75 percentage point hike in interest rates remained the base case for this month’s meeting, although he noted that this could be put in jeopardy for more. economic data.

Data released on Friday appeared to discourage further monetary tightening.

Retail sales rebounded in June, although they fell slightly on an inflation-adjusted basis, while a New York Fed manufacturing index posted windfall gains — evidence that the economy was generally holding up against the three rate hikes already announced by the Fed this year.

Meanwhile, a closely watched measure of consumer inflation expectations improved in June, a welcome move for Fed officials worried about the inflation outlook losing control and needing to act more aggressively to keep it “anchored” .