The minutes of the April FOMC meeting and subsequent comments by various Fed officials have prompted speculation that the Fed could raise interest rates as soon as next month. Treasury yields have rebounded sharply. We always said the June meeting was a realistic possibility, but we still wonder whether a disappointing May employment report will cause the Fed to delay until July or even September. More generally, we expect two rate hikes this year, which is broadly in line with the median forecast of other economists. Where we differ from the consensus, however, is in believing that a rapid resurgence in inflation will prompt the Fed to change tack next year, with the fed funds target range rising to between 2.25% and 2.50% by end-2017.
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