Australian shares have dived 5 per cent at the open. Follow updates here.
The latest pickups in consumer prices and inflation expectations will probably spur Federal Reserve officials to consider the biggest interest rate increase since 1994 when they meet this week, after chairman Jerome Powell previously signalled a smaller move was the likely outcome.
US central bankers conclude a two-day meeting on Wednesday, with a decision due at 2pm in Washington. Powell indicated at his post-meeting press conference in early May that the Fed would move forward with half-point rate rises in June and July as long as economic data came in as expected. It was an unusually precise steer by the Fed chair.
But in the past few days, inflation figures have surprised to the high side, pushing investors to increase bets on a 75-basis-point increase at this week’s meeting, pricing in interest rate futures shows. Those bets hardened on Monday afternoon following a report in the Wall Street Journal suggesting the larger move was now in play.
Economists at major Wall Street firms were quick to change their calls. Goldman Sachs and Nomura Holdings both shifted on Monday to forecast 75 basis point hikes this week and at the Fed’s meeting in late July. JPMorgan Chase also went to 75 basis points at this week’s meeting, joining Barclays and Jefferies, who modified their calls Friday to the larger increase.
Powell and his colleagues, facing harsh criticism for being slow to remove emergency pandemic stimulus and allowing inflation to climb by the fastest pace in 40 years, have repeatedly said they would do whatever it takes to cool prices. While the Fed chief laid out a baseline of 50-basis-point increases in June and July, he also hedged by saying that such moves hinged on the economy evolving along the lines that officials expect.
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