Senior economics reporter with CNBC, Steve Liesman, believes that the US Federal Reserve could be considering a significant interest rate hike of 75 basis points this week. This is something that markets have already been anticipating, and Liesman claims that it is something the Fed is giving serious thought to.
Various factors will affect the decision of Federal Reserve officials, including the rate of inflation, which is way above the Fed’s target of 2%. In addition, there is a strong chance that inflation is yet to peak, which is also likely to sway the decision of Fed policymakers. According to Liesman, the hike of 75 basis points is, therefore, “a real distinct possibility.”
A range of increases forecast for the coming months
In addition to the possibility of a hefty hike this week, economists from Wall Street are also forecasting ongoing hikes of significant proportions from the central bank. It is thought that the 75 basis-point increase this week could be the first of two, with another forecast for July.
Economists are also forecasting an interest rate increase of 50 basis points in September, followed by increases of 25 basis points in both November and December. This would mean that by the end of this year, the base rate would stand at between 3.25-3.5%.
Goldman chief economist, Jan Hatzius, said, “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.”
The Fed Watch tool from the CME Group had initially indicated a 50-basis point increase from the reserve bank until the start of this week. However, as of Monday, this went to a 96% chance of the rate hike being 75 basis points. Krishna Guha, head of global policy and central bank strategy at Evercore ISI, also commented on how unusual it was for this level of media speculation when the next Federal Reserve meeting was so close. At this stage, policymakers involved with rate setting are not allowed to make any public statements.
Huge impact on borrowers
If the series of rate rises go ahead as forecasted, it will have a massive impact on borrowers across the country, affecting a range of adjustable-rate financial products, including credit cards, mortgages, and variable rate loans.
This will mean more significant financial pressure on many households, with many already struggling to keep up with the rising cost of living.