Fed officials maintain pace of hikes even with high prices

(Bloomberg) — Federal Reserve officials are facing pressure to take more aggressive action after a higher-than-expected inflation reading for April, but have so far said they will maintain their strategy of continuing to raise interest rates. by half a point in each of their next two meetings.

«We have a 50 basis point plan in place, which was the one from the last meeting and the one we’re preparing for future meetings,» St. Louis Fed President James Bullard said Wednesday during an interview with Yahoo! Finance. «I think that’s a good benchmark for now.» When asked if a 75 basis point move might be necessary, Bullard said that was not his base case.

Investors seem to agree that a 75 basis point hike is not likely, based on prices in the fed funds futures markets. Traders, however, increased bets that the Fed will implement another half-point hike in September, following similar hikes in June and July, after a Labor Department report earlier showed consumer prices excluding food and energy , increased more than expected in April.

The US central bank last week raised rates by half a point and Powell said the same was on the table for the next two Federal Open Market Committee (FOMC) meetings, while opposed to making a larger move.

Bullard said the inflation report showed price pressures were broader and more persistent than many had thought and his Atlanta colleague, Raphael Bostic, said at a separate event in Jacksonville, Florida, that he would be willing to raise prices. interest rates if inflation continued at its current high rate.

Still, Fed watchers said April’s CPI reading was not what the Fed expected to see and the narrative around a bigger hike could start to change, especially if May’s inflation report also tops. The expectations. That data release is scheduled for June 10, ahead of the June 14-15 FOMC meeting.

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“This should put the 75 basis point talks back on the minds of investors, as well as on the FOMC table,” Roberto Perlí, head of global policy research at Piper Sandler & Co., wrote in a note to investors. customers. “It is too early to know what the Fed will do in June because there is another CPI report a couple of days before the meeting, but now there is an upside risk relative to the 50 basis points that seemed like a foregone conclusion.”

Other Fed watchers argued that the central bank is likely to stick to the plan it has laid out for upcoming meetings.

For her part, Cleveland Fed President Loretta Mester said Tuesday that she supports raising rates by half a point in the next two meetings and then speeding up, or slowing down, the pace of the hikes depending on what happens. with inflation.

Policymakers could raise rates more modestly by 25 basis points in September if future reports show inflation is starting to weaken, said Pablo Villanueva, senior economist at UBS Investment Bank.

«We believe that the outlook for inflation will be very different from the current situation in September,» Villanueva said, although the risk of a half-point rise that month «would increase if inflation remains strong.»

original note:

Fed Officials Stay Course on Half-Point Hikes Despite Hot Prices

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