Fed's Next Move May Be an Unprecedented One

Central bank may raise rates one full percentage point later this month
By John Johnson,  Newser Staff
Posted Jul 14, 2022 12:32 PM CDT
Historic Rate Hike Is Now a Good Bet
A person pays at a halal food truck in New York on Wednesday.   (AP Photo/Julia Nikhinson)

After Wednesday's worse-than-expected inflation report, investors are bracing for something that would have been unthinkable even a few months ago: a rate hike of one full percentage point. Coverage:

  • Odds growing: CNBC reports that in the wake of the inflation data, futures markets are now betting on the steep hike—100 basis points, in economist-speak—from the Federal Reserve at its next meeting on July 26-27.
  • Historic: The Fed raised rates by an aggressive three-quarters of a point at its last meeting, which it hadn't done since 1994. CNN reports that a hike of one full point has never happened in the modern era, meaning since the Fed began using overnight rates to steer policy in the early 1990s, per Bloomberg. The fear is that if the Fed gets too aggressive in trying to tame inflation, it will tip the nation into a full-blown recession.

  • Sentiment shifting: "Everything is in play," Atlanta Fed President Raphael Bostic told reporters Wednesday, and that includes a 1-point increase, per CNN. "I saw that data and thought: This wasn't good news," Mary Daly, president of the Federal Reserve Bank of San Francisco, tells the New York Times. Daly, however, emphasized that a lower hike of 0.75% is still on the table. Still, "you have to put 100 on the table for July," says Andrew Hollenhorst, chief US economist for Citigroup. "Everybody should be quite cautious about calling peak inflation—a few months ago the peak was supposed to be 8.3%." It hit 9.1% in June.
  • What to watch: Fed officials will be keeping an eye on new economic reports that come out before the next meeting, and their public comments in the interim will be carefully parsed. For example, Cleveland Fed chief Loretta Mester didn't tip her hand in regard to a 1-point hike in an interview on Bloomberg Television Wednesday, but she said there was "no reason" for a hike of less than 0.75% in July.
  • Open mind: On Thursday, Christopher Waller, a Federal Reserve governor, also kept the door open to a 1-point hike, reports CNBC. "If I see the incoming data the next two weeks coming in and showing me that demand is still really strong and robust, then I'm going to lean into a higher rate hike," Waller said.
(More Federal Reserve stories.)

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