Business Maverick: Fed Could Weigh Historic 100 Basis-Point Hike After Inflation Scorcher

What Bloomberg Economics Says…

“The Fed is right to worry about the unmooring of inflation expectations — and this report raises the chance of an even larger rate hike than 75 basis points down the line.”Brett Ryan, senior US economist at Deutsche Bank AG, said it made sense to price in some risk of a larger Fed move, but saw it as unlikely without explicit communication from the central bank.

“The hawks had to have agreed to the guidance of 50 to 75, with the understanding that if we got an upside print, 75 would be the number,” he said. “They have time to communicate if they want to put that message out there.” The US central bank has pivoted to aggressive policy tightening to confront the highest inflation in 40 years, which critics say was egged on by policymakers’ slow initial response. They raised rates by 75 basis points last month — the largest increase since 1994 — despite previously signaling that they were on track for a smaller half-point move.

“After what happened in June, I do not rule anything out,’ said Stephen Stanley, chief economist at Amherst Pierpont Securities. “I had been thinking that the Fed would decelerate to a 50-basis-point-per-meeting pace beginning in September, but if the next two monthly inflation numbers look like May’s and June’s, all bets are off.”

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