[Asia Economy New York=Special Correspondent Joselgina] Ahead of the release of the US Consumer Price Index (CPI) for July, hawkish (monetary tightening preference) remarks continue within the central bank, the Federal Reserve (Fed). As attention focuses on whether inflation, which surged to the 9% range, has peaked, the market's bets on a third consecutive giant step (0.75 percentage point hike) have increased.
According to Bloomberg and others on the 8th (local time), Fed Governor Michelle Bowman, attending an event on the 6th, the day after the employment report exceeded market expectations, stated, "Until inflation meaningfully slows down, we need to continue considering large hikes of around 0.75 percentage points, as we did last month." She pointed out that "there is still little concrete evidence to support the view that inflation has peaked," and that high inflation centered on essentials is likely to continue into next year.
Mary Daly, President of the Federal Reserve Bank of San Francisco, expressed concern about the current inflation level during an appearance on CBS Face the Nation. She emphasized that the Fed's rate hike path "is not over yet." When asked about the possibility of a 0.5 percentage point hike at the September Federal Open Market Committee (FOMC) meeting, she said, "We absolutely have to rely on the data," leaving open the possibility of a larger increase.
This aligns with the series of hawkish remarks from Fed officials last week. James Bullard, President of the Federal Reserve Bank of St. Louis, previously mentioned that an additional 1.5 percentage point hike, far exceeding market expectations, is necessary by the end of the year. Charles Evans, President of the Federal Reserve Bank of Chicago, also predicted a 0.5 percentage point hike in September but left room by saying "0.75 percentage points is also fine."
The background to these hawkish remarks is inflation that shows little sign of falling. The US CPI inflation rate surpassed 9% in June. The July CPI inflation rate, to be released on the 10th, is expected to slow to 8.9% compared to the previous month but remains at a high level. The core CPI, which has slowed for three consecutive months, is even expected to rebound to the 6% range. Attention is also focused on whether the US Producer Price Index (PPI), scheduled for release on the 11th, will show further increases.
Moreover, with the employment data released on the 5th greatly exceeding expectations, the market has already widely adopted the view that the Fed will implement a rate hike larger than a big step (0.5 percentage point hike) to lower inflation. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market reflects a 68% chance of a giant step in September. This is a sharp increase from 28% a week ago. On the other hand, the probability of a big step has dropped from 72% to 32%.
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