Traders expect U.S. inflation to climb further from an already 40-year high --- and that's before the Fed can deliver a 50 basis point rate hike in May.
Traders are pricing in a U.S. inflation rate heading for 8.6% through March and April, before Federal Reserve officials even get a chance to deliver a possible 50 basis point interest rate hike in May.Derivatives-like instruments known as fixings imply that the headline, year-over-year consumer-price index gain for March and April will be 8.6%, up from a 40-year high of 7.9% in February.
From a timing standpoint, that puts policy makers in a tough spot. Now that Fed Chairman Jerome Powell has come around this week to entertaining the idea of a half percentage point hike as soon as May, inflation expectations may be turning entrenched. The Fed last week delivered its first rate hike in four years, raising the fed-funds rate by 25 basis points.
Here’s how the table looked on March 3, before the Fed’s March 16 decision to hike rates by a quarter point:
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