'Catastrophically bad' inflation report is boosting chances of a 75-basis-point interest-rate hike

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Market Extra

‘Catastrophically bad’ inflation report is boosting chances of a 75-basis-point interest-rate hike next week

Last Updated: June 10, 2022 at 1:30 p.m. ET
First Published: June 10, 2022 at 12:00 p.m. ET
By Vivien Lou Chen

Friday’s consumer-price index report for May — which showed the annual headline U.S. inflation rate climbing to 8.6% in May, with few signs of having peaked — is boosting the chances of a jumbo-sized rate increase by monetary-policy makers as soon as next week, and eliciting dire warnings that central bankers have completely lost control of prices.

Fed funds futures traders now see a 21% chance of a 75-basis-point hike in June, up from just 3.6% on Thursday, according to the CME FedWatch Tool. Economists at Barclays BARC, -3.69% and Jefferies backed up the shifting expectations, by indicating they expect policy makers to deliver a hike of that magnitude at their June 14-15 meeting.

Beneath the issue of where the Fed goes from here is a much more fundamental and serious problem: Some observers fear the U.S. central bank has already effectively lost control of inflation. May’s price gains were broad-based — hitting everything from shelter to gasoline and food, as well as the narrower gauge, the so-called core reading, that excludes food and energy. The data were “catastrophically bad” for both the Fed and Americans, said Nancy Tengler, chief executive and chief investment officer of Nashville-based Laffer Tengler Investments, which oversees $1.1 billion.

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Below is a roundup of the reaction to Friday’s CPI data:

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