By Ann Saphir and Howard Schneider
(Reuters) – The Federal Reserve is seen delivering another large interest-rate hike in three weeks’ time and further rises this year and early next, after a government report showed inflation was stubbornly hot last month despite a historically fast pace of monetary policy tightening so far this year.
Before the report, traders of U.S. interest-rate futures had all but priced in a fourth straight 75-basis-point hike at the close of the Fed’s Nov. 1-2 meeting.
On Thursday they began also pricing about a one-in-10 chance of a full percentage-point rate hike next month. By year end traders see the Fed’s policy rate at 4.5%-4.75%, up from the current 3%-3.25%, and topping out in the 4.75%-5% range by March of next year.
The leap in rate-hike expectations followed a Labor Department report showing accelerating inflation pressures in September, with the consumer price index jumping 0.4% in a single month. From a year earlier prices rose 8.2%, far above the Fed’s 2% target.
“Our policies have not really bitten as much as they need to for us to get to a better place,” Atlanta Fed President Raphael Bostic told Reuters on Wednesday, before the hotter-than-expected inflation report.
Fed policymakers have driven interest rates up sharply this year, from near-zero just seven months ago. Last month they jolted markets again by signaling they would continue raising rates into next year and then keep them there through at least the end of 2023.
Since that meeting many policymakers have emphasized that they will not let up on the pace of interest-rate hikes until they see progress on inflation, which is eroding Americans’ purchasing power at a faster pace than at any time in 40 years.
“If we do not see signs that inflation is moving down, my view continues to be that sizable increases in the target range for the federal funds rate should remain on the table,” Fed Governor Michelle Bowman said on Wednesday, before the report.
Investors worry the Fed will ultimately go too far and push the U.S. economy into a recession.
(Reporting by Ann Saphir; editing by John Stonestreet and Chizu Nomiyama)
