Citigroup Inc. economists now see a 100 basis-point rate increase as the most likely outcome when the Federal Reserve meets in late July, following data that showed US consumer inflation accelerated to a fresh four-decade high.
“In June the committee showed it would react to each monthly inflation reading,” Citigroup economists led by Andrew Hollenhorst wrote in a note to clients Thursday. “We now expect the Fed to deliver a 100 basis-point rate hike at the meeting later this month.”
Investors hardened bets on Wednesday the central bank would hike by a full percentage point after data showed consumer prices rose a higher-than-expected 9.1% in the year through June. At the prior meeting in early June, the Fed raised rates by 75 basis points, changing tack in the days before the gathering from an expected 50 basis-point move, prodded by hot inflation figures at the time.
Subsequent comments after Wednesday’s inflation data from Atlanta Fed President Raphael Bostic and Cleveland’s Loretta Mester that didn’t explicitly push back on a bigger move — after policy makers had preciously said that a 50- or 75 basis-point increase was on the table — did nothing to alter the impression that 100 basis points could be in play at the meeting.
–By Alister Bull (Bloomberg)