Citi forecasts historic 100-basis point Fed rate hike after inflation shocker

Fed has to swiftly react to hot inflation data to be a Strategist

Federated Hermes chief equity strategist Phil Orlando and Sarge986 president Stephen Guilfoyle discuss how many additional rate hikes will require to slow inflation in “The Claman Countdown.’

Citigroup economists now anticipate seeing the Federal Reserve to approve a historic 100-basis point rate of interest increase when policymakers meet towards the close of June in the wake of the higher-than-expected report on June’s inflation.

“In June the committee showed it would react to each monthly inflation reading,” Citigroup economists headed by Andrew Hollenhorst wrote in a note to customers. “We now expect the Fed to deliver a 100 basis-point rate hike at the meeting later this month.”

This will be the first rate increase that was this big since the Fed began announcing changes to the federal fund rate overnight in 1994. It could put the benchmark rate somewhere between 2.5 percent and 2.75 percent.

Investors have boosted their expectations of the possibility of a massive rate increase following the scorching hot Labor Department report released Wednesday that showed that an increase of 9.1% in the Consumer Price Index increased 9.1 percent during June compared to one year ago, which was higher than the expectations of the market. This is the highest rate of inflation since December 31, 1981. Wall Street is now penciling into a 28% probability of a huge rate increase during the Fed’s July 26-27 meeting, as per the CME Group’s FedWatch tool.

The Chevron gas station advertises the cost per gallon as more than $7. Los Angeles, California on June 22nd 2022. ((Photo from FREDERIC J. Brown/AFP through Getty Images) / Getty Images)

“Everything is in play,” Atlanta Fed President Raphael Bostic spoke to journalists on the streets of St. Petersburg, Florida on Wednesday, following the most recent inflation figures. If asked whether this included the full percentage point increase in interest rates, Bostic said: “It would mean everything.”

Federal Reserve Chairman Jerome Powell largely rejected the idea of a 100 basis point rate hike during the June meeting of the central bank where officials took sway at the last moment and decided to increase the rates to 75 basis points – the first hike of its type since. Powell stated that either the 50-basis point or 75-basis point increase was possible in July.

That was before the report on inflation in June, which was widely regarded as bad, highlighting how severe inflationary pressures in the economy remain. The yields on bonds jumped higher, and stocks fell following the disappointing report that sparked the fear of the Fed is likely to ramp up the fight against inflation.

A man in a mask walks past the U.S. Federal Reserve building in Washington D.C., the United States, on April 29 20th, 2020. ((Xinhua/Liu Jie via Getty Images) / Getty Images)

The Fed is in a tense situation, as it walks the line between slowing consumer demand and moving inflation closer to the 2 percent goal without accidentally leading the economy into a recession. In case of hiking rates, it can result in higher interest rates on commercial and consumer loans, which slows down the economy forcing businesses to cut spending.


Powell acknowledged the possibility of a recession but has maintained that it is more important that the Fed to control inflation regardless of whether a downturn in the economy occurs.

“Is there a risk we would go too far? Certainly, there’s a risk,” Powell stated in the last month. “The bigger mistake to make–let’s put it that way–would be to fail to restore price stability.”

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