Just one month ago, Federal Reserve chairman Jerome Powell said that the central bank was not “actively considering” raising interest rates by three-quarters of a percentage point to fight inflation. But after Friday’s consumer price index report showed inflation is rising faster than expected, Wall Street is worried that Powell may have to change his tune.
Stocks plunged Friday and were down sharply again Monday across the globe. The yield on the benchmark US 10-year Treasury bond rose to 3.27%, the highest level since November 2018. Investors are nervous because the Fed could be heading into uncharted territory. A three-quarter point rate increase would certainly show that the Fed is really worried about inflation. But a move of that magnitude, although not unprecedented, is exceedingly rare. The last time the Fed hiked rates by 75 basis points was in the Alan Greenspan era: November 1994. To be sure, the market still has some doubts that the Fed will be that aggressive at this Wednesday’s meeting.
