Last Friday’s US consumer price report and elevated inflation expectations have increased expectations for rate increases at the next three Federal reserve rate decisions, with investors apparently prepared for hawkish rhetoric to accompany the policy announcement and updated staff projections due this week.

With the Fed committed to bringing inflation under control through the tightening of financial conditions, Wednesday’s well-flagged decision should see the FOMC lift the Fed Funds Rate 50 basis points for a second successive month to a range of 1.25-1.50%.

Based on previous communication from Fed Chair Jerome Powell and his colleagues, BofA Global rates and currencies team said it didn’t expect major fireworks at the June FOMC meeting. “We consider the expected 50bp rate hike a done deal. What will be of interest will be the updated Summary of Economic Projections (SEP) and dot plot.”

Fed officials have openly backed summer hikes of 50bps at the June and July meetings, with this outcome well entrenched within market expectations. However, until recently the probability of a similarly sized September move was hotly debated. Last week’s historic CPI report appeared to settle any argument. The headline inflation rate exceeded expectations by hitting 8.6% year-on-year in May, with core inflation surprisingly strong at 6.2%. Powell is expected to reiterate Vice Chair Lael Brainard’s message that it’s hard to see the case for a pause anytime soon. (LiveSquawk – Continue Reading)

UK monetary policymakers are expected to agree to a fifth consecutive interest rate hike this week, but contention remains on the size of the increase.

The bank is scheduled to announce its latest decision at midday local time Thursday, and analysts anticipate that policymakers will vote to raise rates by 25 basis points, which would take the main rate to 1.25%, a new post-GFC high. Details may show a similar vote outcome as seen in May when the Monetary Policy Committee voted 6-3 to lift rates to 1.0%, with the three dissenters preferring to raise by 50bps.

Deutsche Bank’s Sanjay Raja predicted the June decision to remain split too. “We see at least three members voting for a 50bp move. Big picture, we expect the MPC to take a slightly more hawkish slant relative to May, with fiscal policy weighing on recession risks, inflation risks widening, and the labour market remaining way too hot.” (LiveSquawk – Continue Reading)

The European Central Bank’s Governing Council will hold an ad-hoc meeting on Wednesday “to discuss current market conditions,” according to a spokesman for the bank.

The announcement comes after the yield on Italy’s 10-year debt rose above 4% for the first time since 2014 this week, signaling that investors aren’t convinced the ECB can raise borrowing costs and keep the bond yields of the region’s most vulnerable members in check at the same time.

Last week, the ECB announced that it intends to lift interest rates by a quarter-point in July, followed by a larger hike two months later as it fights against soaring prices. The institution hasn’t increased rates in more than a decade.

The euro rose as much as 0.6% to 1.0475 per dollar following the announcement of the meeting. (Bloomberg – Continue Reading)