Fed to go 75bps? 100bps?

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JPM:

Two developments since the May CPI report reinforce the case for a more hawkish FOMC meeting on Wednesday, in our view. First, the startling rise in the longer-term inflation expectations in the University of Michigan’s consumer sentiment survey could imply a higher level of the nominal neutral interest rate. Second, according to the WSJ this afternoon, the Committee will not go into tomorrow’s two-day meeting constrained by their previous guidance that a 50bp meeting “would likely be appropriate.” As such, we now look for a 75bp hike on Wednesday. To the extent today’s report about Fed officials considering “surprising markets with a larger-than-expected 0.75pp interest rate increase” helps reinforce expectations for such a move, one might wonder whether the true surprise would actually be hiking 100bp, something we think is a non-trivial risk. After this week we look for two more 50bp hikes in July and September before the Committee slows to a 25bp hike per-meeting pace until reaching terminal funds at 3.25-3.50% early next year.

Standard Chartered is even more hawkish:

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.