Bet on 1%P US Interest Rate Hike Soars 10x in One Day [Fed Tightening Gains Momentum]

[Asia Economy New York=Special Correspondent Joselgina] Even the 'Giant Step' (0.75% point interest rate hike) after 28 years ultimately failed to curb soaring inflation in the United States. Last month, the US Consumer Price Index (CPI) inflation rate surpassed 9%, far exceeding market expectations, reinforcing the Federal Reserve's (Fed) high-intensity tightening measures. The forecast for a 1.0% point increase in the benchmark interest rate in one go surged more than tenfold in just one day, from 7.6% to 78%.

According to the Chicago Mercantile Exchange (CME) FedWatch on the 13th (local time), the federal funds (FF) rate futures market reflected over an 80% chance of a 1.0% point rate hike in July. This is a sharp rise from 0% a week ago and 7.6% the previous day. The Fed will hold its regular Federal Open Market Committee (FOMC) meeting over two days starting on the 26th of this month. The possibility of an additional 0.75% point rate hike at the September FOMC has also surged to the 70% range.

The reason high-intensity tightening gained momentum in just one day lies in the inflation indicators. The US Department of Labor released the June CPI increase in the morning, recording 9.1%, far exceeding expert expectations. This figure surpasses the previous month's (8.6%) largest increase since December 1981. As inflation shows little sign of easing despite consecutive rate hikes, voices calling for a much stronger response than the Big Step (0.5% point hike) or Giant Step previously forecasted by Fed Chair Jerome Powell have grown louder.

In particular, remarks by Raphael Bostic, President of the Federal Reserve Bank of Atlanta, further fueled the market's hawkish view. When asked about the possibility of a 1.0% point hike, he said, "Everything is in play." If a 1.0% point hike occurs, it would be the first since the introduction of the overnight rate in the 1990s. Wall Street investment banks such as Nomura Securities and Piper Sandler also suggested the possibility of a 1.0% point hike immediately after the CPI release. Nomura Securities predicted, "As inflation worsens, the Fed will accelerate the pace of rate hikes to increase credibility and respond."

On the same day, the Bank of Canada (BOC) also surprised the market by raising its benchmark interest rate by 1% point due to soaring inflation. This is the largest increase since 1998 and twice the size of last month's 0.5% hike.

With the announcement of high-intensity tightening, warnings of an economic recession have also intensified. The inversion of short- and long-term government bond yields in the New York bond market has continued for seven trading days. The inversion gap between the 10-year and 2-year yields has expanded to the largest since 2000.

This content was produced with the assistance of AI translation services.