Stubbornly hot US inflation is fuelling bets that the Federal Reserve will become more aggressive about trying to cool price pressures and perhaps ditch its forward guidance by delivering a jumbo-sized interest rate rise in the coming months.
Fed policymakers had already all but promised half-point interest rate rises at their meeting next week and again in late July, following May's half-point increase and the start of balance sheet reductions this month.
That would be more policy tightening in the space of three months than the Fed did in all of 2018.
On Friday, traders of futures tied to the Fed policy rate began pricing in an even bolder path after US Labour Department data showed sharply higher food and record petrol prices pushed the consumer price index (CPI) up 8.6 per cent last month from a year earlier.
A separate University of Michigan survey showed longer-term inflation expectations rising to their highest since 2008.
Prices of Fed funds futures contracts now reflect better-than-even odds of a 75-basis point rate rise by July, with a one-in-four chance of that occurring next week — up from one-in-20 before the inflation report — and a policy rate in at least the 3.25 per cent to 3.5 per cent range at year end.
Yields on the two-year Treasury note, seen as a proxy for the Fed's policy rate, topped 3 per cent for the first time since 2008.
“We believe that today's inflation data — both the CPI and UMich inflation expectations — are game changers that will force the Fed to switch to a higher gear and front-load policy tightening,” wrote Jefferies' Aneta Markowska, who joined economists at Barclays on Friday in forecasting a 75 basis points rate increase at the Fed's June 14 to 15 meeting.
Most economists still expect a half-point rise next week, and more of the same at subsequent meetings through at least September if not further.
Core CPI, which strips out volatile energy and food prices, rose 6 per cent in May, down slightly from April's 6.2 per cent pace but far from the “clear and convincing” sign of cooling price pressures that Fed chairman Jerome Powell has said he needs to see before slowing rate increases.
“Any hopes that the Fed can ease up on the pace of rate hikes after the June and July meetings now seems to be a long shot,” wrote Bankrate chief financial analyst Greg McBride.
Economists at Deutsche Bank concurred, and said they now forecast rates to rise to 4.125 per cent by mid-2023.
Families hunt for bargains amid rising prices globally — in pictures
Fed policymakers at the close of next week's meeting will release their own best guesses of how high they will need to lift short-term rates.
They will also provide forecasts of how much unemployment — now at 3.6 per cent — may need to rise before the economy slows enough to reduce inflation.
In recent weeks, some had expressed the hope that by September their own rate rises, along with easing supply chain pressures and an expected shift in household spending away from scarce goods and towards services, would have started to ease price pressures and allowed them to downshift to smaller rate increases.
Friday's inflation report suggested the opposite.
Used car prices, which had been sinking, reversed course and rose 1.8 per cent from the prior month; airline fares rose by 12.6 per cent from the prior month and 37.8 per cent from a year earlier. Prices for shelter rose 5.5 per cent, the biggest jump in more than 30 years.
The Fed's current policy rate target is now 0.75 per cent to 1 per cent. Fed officials want to get it higher without undermining a historically tight labour market and sending the economy into recession, but accelerating inflation will make that a hard task.
“These are ugly numbers … I’d say we’ll probably be in a recession in the fourth quarter of this year with confirmation in the second quarter of 2023,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
RACE RESULTS
1. Valtteri Bottas (FIN/Mercedes) 1hr 21min 48.527sec
2. Sebastian Vettel (GER/Ferrari) at 0.658sec
3. Daniel Ricciardo (AUS/Red Bull) 6.012
4. Lewis Hamilton (GBR/Mercedes) 7.430
5. Kimi Räikkönen (FIN/Ferrari) 20.370
6. Romain Grosjean (FRA/Haas) 1:13.160
7. Sergio Pérez (MEX/Force India) 1 lap
8. Esteban Ocon (FRA/Force India) 1 lap
9. Felipe Massa (BRA/Williams) 1 lap
10. Lance Stroll (CAN/Williams) 1 lap
11. Jolyon Palmer (GBR/Renault) 1 lap
12. Stoffel Vandoorne (BEL/McLaren) 1 lap
13. Nico Hülkenberg (GER/Renault) 1 lap
14. Pascal Wehrlein (GER/Sauber) 1 lap
15. Marcus Ericsson (SWE/Sauber) 2 laps
16. Daniil Kvyat (RUS/Toro Rosso) 3 laps
The specs: 2019 Infiniti QX50
Price, base: Dh138,000 (estimate)
Engine: 2.0L, turbocharged, in-line four-cylinder
Transmission: Continuously variable transmission
Power: 268hp @ 5,600rpm
Torque: 380Nm @ 4,400rpm
Fuel economy: 6.7L / 100km (estimate)
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Biog
Mr Kandhari is legally authorised to conduct marriages in the gurdwara
He has officiated weddings of Sikhs and people of different faiths from Malaysia, Sri Lanka, Russia, the US and Canada
Father of two sons, grandfather of six
Plays golf once a week
Enjoys trying new holiday destinations with his wife and family
Walks for an hour every morning
Completed a Bachelor of Commerce degree in Loyola College, Chennai, India
2019 is a milestone because he completes 50 years in business
UAE currency: the story behind the money in your pockets
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
Infiniti QX80 specs
Engine: twin-turbocharged 3.5-liter V6
Power: 450hp
Torque: 700Nm
Price: From Dh450,000, Autograph model from Dh510,000
Available: Now
Get inspired
Here are a couple of Valentine’s Day food products that may or may not go the distance (but have got the internet talking anyway).
Sourdough sentiments: Marks & Spencer in the United Kingdom has introduced a slow-baked sourdough loaf dusted with flour to spell out I (heart) you, at £2 (Dh9.5). While it’s not available in the UAE, there’s nothing to stop you taking the idea and creating your own message of love, stencilled on breakfast-inbed toast.
Crisps playing cupid: Crisp company Tyrells has added a spicy addition to its range for Valentine’s Day. The brand describes the new honey and chilli flavour on Twitter as: “A tenderly bracing duo of the tantalising tingle of chilli with sweet and sticky honey. A helping hand to get your heart racing.” Again, not on sale here, but if you’re tempted you could certainly fashion your own flavour mix (spicy Cheetos and caramel popcorn, anyone?).
Despacito's dominance in numbers
Released: 2017
Peak chart position: No.1 in more than 47 countries, including the United States, the United Kingdom, Australia and Lebanon
Views: 5.3 billion on YouTube
Sales: With 10 million downloads in the US, Despacito became the first Latin single to receive Diamond sales certification
Streams: 1.3 billion combined audio and video by the end of 2017, making it the biggest digital hit of the year.
Awards: 17, including Record of the Year at last year’s prestigious Latin Grammy Awards, as well as five Billboard Music Awards
UAE currency: the story behind the money in your pockets
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
Scoreline
Bournemouth 2
Wilson 70', Ibe 74'
Arsenal 1
Bellerin 52'
