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The
Federal Reserve meets on Wednesday in the midst of heavy selling
in stock and bond markets following May data showing the U.S.
consumer price index (CPI) rising at its fastest pace since
1981.
A 75 basis point (bp) hike would be the biggest since 1994.
CME's FedWatch tool, based on the prices of short-term credit
futures, shows about a 1/4 chance of a 75 bp rate hike at this
month's meeting and a better-than-even chance of there being at
least one 75 bp hike by next month's meeting.
"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 on
Monday. His note forecast a 75 bp hike on June 15, up from 50bp.
"We felt compelled by circumstances to change our view (and) so
communicate it."
Barclays and Jefferies also forecast a 75 bp hike for this week.
"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."
Markets have braced, too, with a selloff in short-dated
Treasuries along with futures tied to the Fed policy rate
extending in Asia on Monday. Yields on the two-year Treasury
note are at their highest since late 2007. [US/]
(Reporting by Tom Westbrook; Editing by Bradley Perrett)
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