Market Extra: ‘The economy is still too hot for the Fed’: Chance of June rate hike rises further above 50% after inflation data

by | May 26, 2023 | Stock Market

Data showing U.S. inflation stuck in the 4%-5% range and consumer spending coming in stronger than expected for last month are boosting the likelihood of another Federal Reserve rate hike in June.

As of Friday morning, after the release of April’s personal consumption expenditures index, fed funds futures traders saw a 55% likelihood that the Federal Reserve will lift rates by another quarter of a percentage point in June. That’s up from 51.7% a day ago, and would take the Fed’s main benchmark rate target to between 5.25%-5.5% next month, according to the CME FedWatch Tool.Financial-market players have been considered the possibility that the U.S. economy is more resilient than thought — that is, less prone to contracting and less sensitive to higher interest rates — even after more than a year of Fed rate hikes. Peter Essele, head of portfolio management for Commonwealth Financial Network, said the PCE report “puts a June hike back in play, perhaps even greater than a quarter percent hike in a last-ditch effort by the Fed to put out the inflationary fire once and for all.”“The upside surprise to April PCE inflation and strong household spending are stark reminders to markets that, once the debt-ceiling drama fades, the economy is still too hot for the Fed,” said Chris Low, chief economist for FHN Financial in New York. In a note Friday morning, he said that “trading is choppy now — not surprising until Congress and the President actually raise the debt ceiling — but market expectations are entertaining a 25 basis point June hike as a real possibility compared to eve …

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