Peak inflation won’t stop the Fed hiking aggressively

The news that core prices rose by a more modest 0.3% in March, even as higher energy prices drove headline inflation to a 40-year high of 8.5%, explains why investors pared bets this week on how far interest rates would rise. We still expect the Fed to deliver a series of 50bp rate hikes at its next three policy meetings. But weak GDP growth and a drop in core inflation to nearer 4% should persuade the Fed to revert to 25bp hikes from September onwards. We are sending this Weekly one day earlier than usual because our offices are closed for Good Friday on Friday, 15th April.