SINGAPORE, June 14 — Rising expectations that the Federal Reserve this week will raise interest rates by more than previously forecast unsettled investors yesterday, sending the S&P 500 into a bear market and intensifying fears over the economic outlook.
“The May inflation data was so concerning that we think the Fed will react even more aggressively in moving rates ‘expeditiously’,” BNY Mellon strategist John Velis said yesterday. His note forecast a 75-basis-point hike, up from a 50 basis-point prediction.“US CPI surprised to the upside and continues to show broad and persistent price pressures,” Barclays analysts said in a Sunday note. “We think the Fed probably wants to surprise markets to re-establish its inflation-fighting credentials.
Bets on the US terminal rate — where the Fed funds rate may peak this cycle — continue to rise. Yesterday, rates were priced to approach 4 per cent in mid-2023, up almost one percentage point since end-May. Deutsche Bank said it now saw rates peaking at 4.125 per cent in mid-2023.