Fed's Evans and Harker: Support 50bps rate hike

Chicago Fed President Evans said the next meeting may raise interest rates by 50bps. He believes that raising interest rates to 50 to 75bps above the neutral rate and maintaining it for a period of time will help curb inflation. Philadelphia Fed President Harker said on Wednesday that he expects the central bank to raise interest rates by 50 basis points in two 50bps in June and July, followed by a single 25bps hike until inflation is beaten back.

Harker said he expects the U.S. economy to grow 3 percent this year, enough to keep the labor market tight through the end of the year despite higher interest rates. The belief that the Fed can reduce inflation without tipping the economy into recession is partly due to the strength of the labor market right now. There may be a few quarters of negative growth and the economy can withstand a “moderate” and “methodical” tightening of financial conditions, which will push demand lower. After that, he expects a series of more dovish rate hikes until the central bank is confident that inflation is falling back toward the FOMC target.

Fed officials are rapidly raising interest rates to combat inflation, which has risen to a 40-year high in recent months. According to data released by the Labor Department on May 11, the U.S. CPI rose 8.3% year-on-year in April. Federal Reserve Chairman Jerome Powell on Tuesday reiterated expectations that the Federal Open Market Committee (FOMC) could raise interest rates by 50bps each at its June and July meetings.

Financial data and events to focus on today:

19:30 ECB releases the minutes of its April monetary policy meeting

20:30 US initial jobless claims for the week of May 14

22:00 US April existing home sales total annualized

22:30 U.S. EIA natural gas inventories for the week of May 13