Markets are beginning to anticipate an even faster pace of interest rate hikes, and Federal Reserve officials apparently are contemplating the possibility as well.
Central bank policymakers are entertaining the idea of a 75 basis point increase to the Fed’s benchmark funds rate that banks charge each other for overnight financing, according to CNBC’s Steve Liesman.
Changes in the economic outlook, including the likelihood that inflation hasn’t peaked and is running well ahead of the Fed’s 2% goal, could influence a bigger rate move during the two-day meeting that concludes Wednesday.
A 75 basis point move is “a real distinct possibility,” Liesman said.
An earlier Wall Street Journal story Monday afternoon first reported the change in central bank stance. The fed funds rate feeds through to many consumer products that are based on adjustable rates, such as mortgages and credit cards.
Goldman Sachs said it is altering its own expectation of a 50 basis point move to 75, citing the Journal’s reporting and noting that the newspaper had a day previous reported that the bigger move was “unlikely.”
The Wall Street firm’s economists now foresee consecutive 75 basis point rate hikes in June and July, followed by a 50 basis point move in September and 25 basis point moves in November and December, taking the fed funds rate to a range of 3.25%-3.5% by the end of the year.
“The most likely triggers for a shift to a more aggressive pace of tightening are the upside surprise in the May CPI report and the further rise last Friday in the Michigan consumer survey’s measures of long-term inflation expectations that has likely been driven in large part by further increases in gas prices,” Goldman chief economist Jan Hatzius and others said in a note.
Krishna Guha, head of global policy and central bank strategy at Evercore ISI, noted the unusual nature of the media speculation so close to a meeting, when policymakers are prohibited from making public statements.
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