The Fed meets this week and is expected to raise managed rates by at least 50 basis points.

There is growing pressure for an even larger increase as inflation data has not indicated any slowdown or peaking of price increases. We could get a 75 bp move considering the CPI data released last week. The May CPI data came in much stronger than expected with upward pricing pressure across every sector of the economy. The May data drove the YOY increase to another forty-year high. Investors had been expecting inflation to peak with the April data. Clearly that did not happen. Financial markets have increased the risk premium in asset pricing with the probability of a recession needed to break the inflation spiral. The consensus seems to be that there needs to be a large decline in final demand to bring the supply/demand equation into balance and relieve pricing pressures.

 

PROBANK AUSTIN ADVISOR - JUNE 13, 2022