Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Inflation is so hot the Fed may have to hike interest rates like it's 1994

Inflation is so hot the Fed may have to hike interest rates like it's 1994

Inflation is so hot that Wall Street banks are falling over each other to predict the dramatic moves the Federal Reserve will have to make to cool prices off.

Goldman Sachs raised eyebrows earlier this week by forecasting the Fed will raise interest rates by a half a percentage point in each of the next two meetings.

Morgan Stanley and Jefferies quickly endorsed that view, even though the Fed hasn't done a rate hike of that size at a single meeting since 2000.

Now, Citigroup is upping the ante. Citi economists said Friday they expect the Fed will boost interest rates by a half a percentage point during each of the next four meetings. And Citi left the door open for even more aggressive steps, such as big rate hikes at every remaining meeting this year.

The aggressive call underscores the level of concern about the inflation outlook, which has darkened considerably in recent weeks because of Russia's invasion of Ukraine and the ensuing spike in food, energy and other commodity prices.

"With inflation likely to be very strong in March...and to remain elevated in April, we think it will be hard for Fed officials to argue why they would not raise 50 [basis points]," Citi economists wrote, referring to basis points.

Citi warned that if inflation "unexpectedly accelerates" or long-term inflation expectations rise "rapidly," it's possible the Fed will hike rates by more than half a percentage point in a meeting.

1994 bond market meltdown


Normally, the Fed raises rates gradually, moving in quarter-point increments. But with consumer prices surging at the fastest pace in 40 years, these are not normal times.

Keep in mind that just a year ago, Fed officials indicated they saw no interest rate increases until at least 2024. Now, investors are bracing for six more rate hikes just this year.

The last time the Fed raised interest rates by half a percentage point or more in four straight meetings was late 1994-early 1995. That series of aggressive rate hikes helped set off chaos in financial markets, with bond markets melting down and hedge funds collapsing. Months later, the Fed was forced to reverse course and cut interest rates.

'There is an obvious need'


Fed Chairman Jerome Powell signaled this week that officials are prepared to step up their belated fight against inflation.

"There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level," Powell said at an event hosted by the National Association for Business Economics.

That's Fed speak for the central bank going from pedal-to-the-metal support for the economy to hitting the brakes. That makes sense given that inflation is high and unemployment is low.

But the harder the Fed hits the brakes, the greater the risk of causing an accident that could potentially wreck the financial markets, the real economy, or both.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Hungary Ranked Among the World’s Safest Travel Destinations for 2025
G7 Leaders Fail to Reach Consensus on Key Global Issues
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
×