Speculators in the interest rate futures market are pricing in a belief that the U.S. Federal Reserve will raise its key interest rate to 5 percent by next May as inflation proves stubbornly hard to slow, the Financial Times reported.
Fed officials earlier had indicated that rates would peak at 4.6 percent, but speculators raised their expectation after new data showed September’s core inflation rate edged up across a broad array of goods and services.
Because of inflation’s intransigence, markets also have priced in another three-quarter-point rate increase when the Fed’s rate-setting committee meets next week.
That would jack the key federal funds rate to between 3.75 and 4 percent, compared to 0.25 percent in March, just seven months ago.
Some market players and analysts fear that the Fed will add another three-quarters of a point in December and a half-point in February, the FT noted.
TREND FORECAST: The U.S. economy already is sagging under the weight of a Fed rate of less than 4 percent. Boosting the rate to 4.6 percent would put the economy into a recession; sending it to 5 percent within the next eight weeks would plunge it into a severe reversal that would make a material difference to inflation at the expense of millions of jobs.