“Bloomberg Economics believes a 75-bp hike strikes the correct balance. The risk that inflation will trend upward is high. With Covid cases surging again and the war in Ukraine still raging, it’s likely we haven’t seen the last adverse supply shock. And with inflation expectations already on shaky grounds, the Fed needs to act preemptively before expectations become unmoored.
At the July meeting, the FOMC statement is expected to retain its language giving guidance on interest rates that pledges ongoing increases, without specificity on the size of the adjustments. “The Fed is between a rock and a hard place; we can’t get out of the inflationary environment we are in with out suffering some pain and scars,” said Diane Swonk, KPMG LLP chief economist.