Is a bigger Fed rate hike coming?

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I think yes.

The higher-than-expected rise in consumer prices last month has increased the likelihood that the Federal Reserve will boost interest rates even more than anticipated at its two-day policy meeting on July 26 and 27.

The CME Group’s FedWatch Tool indicated the probability of policymakers raising rates a full percentage point is now at 71.4%, up from just 7.6% yesterday. That would bring the federal funds rate to a range of 2.5% to 2.75%. The FedWatch tool found a 28.6% chance of an increase of 75 basis point (bps). Previously that was 92.4%.

What is this FedWatch tool? You may ask. This is basically a prediction the Fed’s next move. And it has been pretty accurate…

A Fed decision to hike rates by 100 bps would follow the Bank of Canada (BOC), which surprised markets by making that move today. The BOC said inflation is higher and more persistent than it expected back in April, and raised its 2022 inflation estimate by almost two percentage points to 7.2%.

The U.S. Consumer Price Index (CPI) showed prices soared at an annual rate of 9.1% in June, the highest since November 1981.

The FedWatch tool also showed an almost 75% probability that U.S. interest rates will be 3.5% or higher by the end of the year.