Investment banks have raised their projections for a US interest rate hike following evidence that inflation remains high with some experts having forecast a 75 basis point rise this week. This is seen as disturbing the market.
The Federal Reserve (The Fed) is expected to meet on Thursday amid big sell-offs in stock and bond policies following May data showing U.S. consumer prices. increased at the fastest rate since 1981. The 75 basis point increase will be the largest since 1994.
The S&P 500 data seemed to carry a confirming indication that the market was in a bearish state (bear market) on Monday, while part of the Treasury yield curve looked upside down following concerns that a big Fed hike would put the economy into recession. The FedWatch CME tool, based on short-term credit futures prices, showed about 1/4 chance of a 75 basis point rate hike at this month’s meeting.
According to BNY Mellon strategist John Velis on Monday, "May's inflation data is so worrying that BNY thinks the Fed will react more aggressively at a faster pace". He personally predicted a 75 basis point increase on June 15, up from 50 basis points.
Barclays and Jefferies also forecast 75 basis points for the week. A Barclays analyst in one post, “The US CPI over the course of the day showed widespread and persistent price pressures. On that basis, we think the Fed may come with a surprise at the meeting later ”.
Standard Chartered said in a note Monday that even it expects a half -point increase this week. At the same time does not preclude a larger increase of 75 basis points or even a full percentage point.
The market was also poised, with sales in short -term bonds with futures tied to Fed policy rates. The yield on two -year Treasury notes was at its highest level since late 2007.
Signs of an economic slowdown include a survey last week that showed U.S. consumer sentiment declining to its lowest level in early June. According to Standard Chartered, rate hikes are not enough to fight inflation.
The US dollar index, which measures the US dollar against six major currencies, traded 0.86% stronger at 104.907.
