Federal Reserve Chairman Jerome Powell, who has carefully telegraphed interest rate hikes for four years, seems likely to abandon gradualism and move harder to end inflation along with growing concerns that persist.
The Federal Open Market Committee is expected to raise rates by 75 basis points for Wall Street firms such as Goldman Sachs Group, JPMorgan Chase & Co and Barclays, which cite rising inflation expectations among Americans to seek the largest increase in nearly three decades.
The Fed will announce a decision and release new forecasts at 2 p.m. Wednesday (4:00 a.m. EAST Thursday) in Washington. Powell will give a press conference 30 minutes later.
“The usual rule is that if you’re worried about how your movements will affect the financial markets, you move cautiously,” said Barclays senior economist Jonathan Millar, one of the first to ask for 75 basis points. “You’re worried about the risk of breaking something. In that case, it’s worth breaking something. We’re at a very critical point where it seems like your credibility is starting to erode.”
Powell said last month that the Fed was not actively considering a move of 75 basis points, though he did not rule it out if conditions change. While the Fed chief set a baseline of 50 basis point increases in June and July, he also covered by saying it depended on the evolution of the economy as officials expected.
On Friday, data showed that the consumer price index rose 8.6% in the 12 months to May, the highest in 40 years and defying forecasts that inflation had already peaked. The Fed has a 2 percent inflation target, based on a separate measure, the personal consumer spending price index, which stood at 6.3 percent in April.
Even more troubling for central bankers was the University of Michigan sentiment survey, which showed that respondents expected prices to rise by 3.3% annually over the next five to 10 years, the highest since 2008 and beyond. than 3% in May.