Fed to hike by 75bp this week, in race back to neutral

Last Friday, we warned in our Data Response to May’s CPI report that the unexpected rise in headline inflation opened the door to a 75bp rate hike by the Fed this Wednesday. Media reports this afternoon suggest the Fed will indeed hike by 75bp at this week’s FOMC meeting and there is a good chance that the Fed will follow up with a second 75bp hike in July, taking the fed funds target range to between 2.25% and 2.50%, which is in line with the Fed’s estimate of neutral.