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The Federal Reserve is likely to accelerate the pace of interest rate hikes to rein in stubbornly high inflation, according to a growing number of Wall Street analysts.
Aditya Bhave, a U.S. economist with BofA Global Research, expects monetary policymakers to raise the Fed’s benchmark rate by 0.25 percentage points at each of the central bank’s next three meetings in December, January and March. Analysts at TD Securities also predict three straight quarter-point hikes, up from their previous forecast of two, because hotter inflation signals that price pressures across the U.S. are broadening.
The latest Consumer Price Index showed that inflation rose more than expected in October, climbing 0.4%.
“Inflation is not trending in the right direction,” TD Securities said Friday in a note to investors. “The October report not only surprised our own forecast, it was also not driven by a particular factor or two as had been the case in recent reports. Price pressures appear to be broadening.”
Hotter inflation in October was the third straight month that prices have risen faster than expected amid supply constraints and ample economic demand, according to EY-Parthenon chief economist Gregory Daco, who is penciling in rate hikes for December and January.
“For any borrower, this will mean a high cost of borrowing for any type of consumer loan people take out,” Daco told CBS News. “A higher federal funds rate trajectory will generally mean higher long-term interest rates and increase the cost of borrowing for consumers across the country.”
Interest rate traders put the odds of a quarter-point hike at the Fed’s next meeting on Dec. 8-9 at nearly 90%, and also see a better-than-even chance of another such hike at the Jan. 26-27 gathering, according to CME FedWatch.
Some Fed officials themselves have said tightening may need to be more aggressive to bring inflation in line with their 2% annual target. At a conference in London on Tuesday, Fed Governor Christopher Waller said policymakers should consider a 0.50 percentage-point increase in December, adding that a smaller hike “would put our credibility at risk.”
High energy prices continue to drive inflation, along with robust corporate spending on data centers and other equipment for powering AI.
“Together, these forces could keep inflation elevated into 2027 and weigh further on household purchasing power,” Daco said in a report.
