Fed watchers think Fed Chairman Jerome Powell and his colleagues will be hawkish at their meeting Wednesday in light of the strong May consumer inflation data.
The sizzling U.S. consumer inflation report for May released Friday was a game-changer for the Federal Reserve, ensuring that the central bank will take a hawkish stance in their decisions on Wednesday, economists said.
“Doves don’t exist on the committee right now,” said Rob Dent, U.S. senior economist at Nomura, in an interview. The clearest sign of the hawkish Fed will be in the the central bank’s revised estimates of how high the central bank’s policy interest rate will rise over the next 18 months.Dent said he thinks the Fed will raise that forecast by 100 basis points to 2.87%. And the Fed will signal the benchmark rate will rise to 3.1% in 2023 “at a minimum,” he added.“The basic story we’re expecting is a steeper path and a higher terminal rate,” Dent said.
Before the CPI reading on Friday, the consensus of economists was that the Fed will raise its benchmark rate by a half-percentage point next week and again at its next meeting on July 28-29. The debate was over what the Fed would do at its September meeting though.Jonathan Millar, acting chief U.S. economist at Barclays Investment Bank, thinks the Fed will surprise the markets with a 50 basis point move next week.
It is now dawning on the Fed that it might take a recession to get inflation under control, said Coronado of MacroPolicy Perspectives. “It is not a recession but it is very weak growth. It would not take much to tip the economy into recession at all,” Dent said.
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