When the CPI report was released opinion on a 100 basis point hike by the Fed went from zero percent to over fifty in a matter of minutes. However, as time has faded so has the idea of a full point hike at the next Fed meeting.
Federal Reserve Christopher Waller said in a speech on Thursday that he supported a 75 bip hike “I support another 75-basis point increase, bringing the target range for the federal funds rate to 2-1/4 to 2-1/2 percent before August. I judge that level is close to neutral, by which I mean a level that neither stimulates nor restricts demand, assuming that the economy is growing moderately (at its potential) and unemployment is roughly where it is now.”
- NOTE: Waller did leave the possibility of larger rate hike on the table. “…We have important data releases on retail sales and housing coming in before the July meeting. If that data come in materially stronger than expected it would make me lean towards a larger hike…” You have to wonder if those better-than-expected retail numbers moved the needle at all?
Atlanta Fed President Raphael Bostic, speaking at an event hosted by the Tampa Bay Business Journal, said he did not support a full point hike. ““Moving too dramatically I think would undermine a lot of the other things that are working well…My goal is, let’s try to fix the things that are not working while minimizing the spillover negative effects that might come to other parts of the economy.”
As of Friday afternoon, the CME Group’s Fed Watch has the likelihood of a 100 bip rate hike at 30%. Down almost half from where it was on Wednesday. While support may be fading it is important to remember what happened in June. Some bad inflation data lead to a report from Nick Timiraos at the Journal to speculate about a 75 bips hike that really wasn’t on the radar officially. Two days later, the Fed announced 75 basis point hike. It’s hard to know what will happen in two weeks but it is important to remember that consensus can change quickly.