(Reuters) – SingaporeAs a result of a higher-than-expected inflation reading, investment banks have raised their predictions for U.S. interest rate hikes. Many now expect a 75-basis-point hike this week.
The Federal Reserve meets on Wednesday, when both stock and bond markets are seeing a lot of selling. This is because in May, the U.S. consumer price index (CPI) went up at the fastest rate since 1981.
The biggest increase since 1994 would be 75 basis points (bp).
Based on the prices of short-term credit futures, CME’s FedWatch tool shows that there is about a 1/4 chance of a 75 bps rate hike at this month’s meeting and a better-than-even chance of at least one 75 bps rate hike by next month’s meeting.
John Velis, a strategist at BNY Mellon (NYSE:BK), said on Monday, “The May inflation data was so worrying that we think the Fed will move rates even more quickly and aggressively in response.” His note said that the rate would go up by 75 bp on June 15, up from 50 bp.
“Circumstances made us feel like we had to change our minds, so we told people.”
Barclays (LON:BARC) and Jefferies both think that the rate will go up by 75 basis points this week.
Analysts at Barclays said in a note on Sunday that the US CPI surprised to the upside and that it still shows broad and persistent price pressures. “We think it’s likely that the Fed wants to surprise the markets to prove that it’s still good at fighting inflation.”
In Asia on Monday, a selloff of short-term Treasuries and futures tied to the Fed’s policy rate has been going on for a while. This has given the markets a chance to prepare. Since late 2007, this is the highest yield on a two-year Treasury note. [US/]
