Stubbornly hot U.S. inflation is fueling bets that the Federal Reserve will get more aggressive about trying to cool price pressures and even potentially ditch its own forward guidance by delivering a jumbo-sized interest rate hike in coming months.
Prices of Fed funds futures contracts now reflect better-than-even odds of a 75-basis-point rate hike by July, with a one-in-four chance of that occurring next week – up from one-in-20 before the inflation report – and a policy rate in at least the 3.25%-3.5% range at year end.
Would such an increase cause a recession? Perhaps an economic contraction and higher unemployment numbers are needed to bring inflation down to more tolerable levels? Volcker had to put the economy through a wringer to get inflation down.
The Fed is suppose to be non political & independent. Yet such an increase could have political consequences this fall. Do they wait until after the election? Or act now to aid the economy & the American people?
I don’t think the Fed can wait but they will not be aggressive in the increase. Split the difference? 35-40 basis point increase?
Personally I am not going to cash or reducing stock exposure, I am 65% in stock ETFs, even though I am expecting a downdraft in the market. I’ll take the hit & wait for the recovery. The market has always recovered; and I expect it will again. I am not confident in my ability to time the market. Thus I do nothing.