“There is little doubt that the inflation data will induce the Fed to be more aggressive over the next several meetings,” Roberto Perli, head of global policy research at Piper Sandler & Co., wrote in a note . “Given that inflation continues to prove itself more persistent than expected and given that most of the FOMC likely agrees with the market that a higher peak rate is called for, it’s not clear that getting there more slowly and gradually is preferable to getting there more quickly.”
While a bigger hike this month would help policy makers get to their terminal rate faster, some economists worry that it might lead markets to expect rate cuts sooner than policy makers intend.
“Pushing back against expectations of easing next year is not merely a matter of aligning forecasts, but rather of exerting more influence over longer-term interest rates: basically the opposite of the ‘low-for-long’ strategy that many market participants have been raised on,” Michael Feroli, chief US economist at JPMorgan Chase & Co, wrote in a note. “In this regard, a 100 basis point move next week may only encourage those who see easing next year following a Fed accelerating hikes in late ‘22.”
This article was provided by Bloomberg News.