The world’s most influential central bank will hike interest rates by more than double the amount it usually does at its next meeting to send a strong signal that it is serious about taming red hot inflation.
The US Federal Reserve will lift the world’s most important interest rate 50 basis points on 4 May, according to market expectations.
Fed chair Jerome Powell and co are anticipated to launch the abnormally high hike at their next policy meeting to underline their commitment to seeing through what is expected to be one of the quickest monetary policy tightening cycles.
“Markets are now pretty convinced that the Fed will hike by 50 basis points on 4 May. After the slew of comments from policymakers in recent weeks, that’s clearly a very live risk,” Ian Shepherdson, chief US economist at Pantheon Macroeconomics, said.
Powell has told US lawmakers the Fed will raise rates quicker if needed. The Fed normally lifts rates in 25 basis point increments, which it did at its last meeting.
Goldman Sachs, Citi and Bank of America are baking in several 50 basis point hikes this year.
The Fed must move “expeditiously” on rates and “more aggressively” to avoid high inflation becoming entrenched, Powell said recently.
The sharp policy pivot from providing a floor for the US economy through the Covid-19 crisis by flooding financial markets with cheap money to raising rates rapidly has been sparked by inflation across the pond climbing to a 40-year high of 7.9 per cent.
The Fed has a long term inflation target of two per cent.
Higher interest rates theoretically douse inflation by cooling demand.
Unexpected leaps in forthcoming inflation reports may coax the Fed into hiking 50 basis points.
“The Fed, after all, keeps telling us that the path of rates is data-dependent,” Shepherdson added.