After Another Red Hot Inflation Reading, Debate Rages About 100-bps Hike in July
2022.07.13 19:21
After Another Red Hot Inflation Reading, Debate Rages About 100-bps Hike in July
By Investing.com Staff
The debate is raging about whether the Fed should bite the bullet and raise 100 bps at the July 26-27th meeting, versus their telegraphed 75 bps hike, following today’s red hot CPI number.
Traders are already making bets that this could be the case and market pundits are making their cases as well. Also, our neighbors to the north – Canada – just dropped the 100 bps bomb today, raising its policy rate to 2.5%.
Markets are now pricing in a little less than a one-third chance of a 100 bps hike later this month, versus just a 0.2% chance of such a move before today’s CPI data.
The precedent for a 100 bps hike is already there. In June, a 50 bps hike was telegraphed by the Fed and they boosted by 75 bps instead following a similarly hot inflation number. Further, the Fed fund rate currently sits at 1 1/2% to 1 3/4% versus a terminal rate as high as 4%, giving them plenty of breathing room to raise by 100 bps.
JPMorgan Chase economist Michael Feroli thinks the Fed has time to change expectations to 100 bps.
“I think they have time, if they want, to change that expectation to 100. I don’t think they’ve given us a great reason why they should be going slow here, or being gradual,” Feroli said, according to Bloomberg News. “If you do in fact get 100 in July and 75 in September, then I think the growth outlook for later in the year probably deteriorates. Right now I’m inclined to think that the main impact might be to motivate more front loading by the Fed,” he added.
