The US Federal Reserve is preparing drastic measures to deal with rampant inflation

The Federal Open Market Committee will meet for a two-day meeting on Tuesday, just days after two economic reports suggested that price pressures had become more relentless than expected.

Ahead of Friday’s data – which showed prices rose another 1% in May from the previous month, and consumers became increasingly concerned that high inflation would remain a problem for longer – the Fed reported that it is ready to approve a second consecutive half-point increase in the interest rate. It would be the first time since 1994 that the US central bank has opted for such a rate hike at two consecutive meetings.

But another measure last used in 1994 is also likely to be considered now: raising rates by 0.75 percentage points.

Markets have taken full account of this result, following a report by the Wall Street Journal which suggested that officials will discuss this possibility this week. JPMorgan chief economist Michael Feroli raised the bank’s call for the next meeting to 0.75 percentage points.

Krishna Guha, vice president of Evercore, said such a move “is not what we believe is the best policy and, in our view, is not good for the markets”, which has been affected by growing fears on Monday. inflation.

Economists are struggling with what will follow beyond the meeting, as the central bank faces several inflationary shocks that have raised doubts that it is moving fast enough to address what is already becoming a difficult issue. solved.

The Fed is committed to moving “quickly” toward a neutral framework – one that does not stimulate or slow growth – although President Jay Powell recently acknowledged that this threshold “is not something we can pinpoint.” Rather, he promised to keep up the pressure until there was “clear and convincing” evidence that inflation would subside.

US central bankers will pass on their economic policy trajectory in an updated “dot plot” to be released on Wednesday, presenting individual interest rate projections as part of a broader set of economic outlook estimates. In the latest set of projections, published in March, senior officials estimated a reference monetary policy rate of 1.9% by the end of the year and 2.8% in 2023.

Policy makers are also set to release updated forecasts on inflation, growth and unemployment, which are expected to reflect Powell’s recent recognition that measures needed to ease price pressures will lead to “some pain”.

Economists have challenged March estimates that suggested a slow movement of the unemployment rate from historically low levels, even though the policy has become significantly stricter.

Since then, Powell has acknowledged that the unemployment rate is likely to rise “by a few ticks” and that the central bank may be able to achieve only a “softer” landing for the economy – a message that Gargi Chaudhuri, head of iShares’ investment strategy for America told BlackRock, “We can’t go all out with weapons now without some repercussions.”

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