Will the Fed deliver an extra large interest-rate rise?
The Federal Reserve is widely expected to announce on Wednesday at the conclusion of its policy meeting that it will raise its key interest rate by 0.5 percentage points, the first increase of that size since 2000.
The aggressive step is just the first of three now anticipated by investors, who believe the US central bank will need to move rapidly to fight inflation that remains at 40-year highs. Fed chair Jay Powell in April said that it was appropriate to “be moving a little more quickly” to tighten monetary policy. Investors are betting that interest rates — which are currently between 0.25 and 0.5 per cent — will be lifted to 2.7 per cent by the end of the year.
US government spending has slowed and financial conditions have begun to tighten, but new sources of inflation — the war in Ukraine and fresh lockdowns in China — are likely to keep pressure on prices.