US Federal Reserve Can Introduce Strong Interest Rate Hike, Inflation At 41-Years High

The US Federal Reserve, the country's central bank is set to release its upcoming policy measures as the two days of the Federal Open Market Committee (FOMC) meeting will be over later today. The Fed officials are worried about a 41-years high headline inflation rate, which increased 8.6% in May, as per the Labor Department. The inflation rate has also gained on a month on month basis.

The Fed is taking up the policy of squeezing liquidity in the country and raising the interest rate to control the high inflation rate. This year, it has already initiated rate hikes which helped the US treasury yields to go up sharply. This time, investors are again anticipating at least a 50 bps rate hike. In the upcoming meetings also, the Fed is expected to hike the rate, which will lead to a minimum of five rate hikes this year. However, some analysts and some Wall Street companies like Goldman Sachs Group Inc, JPMorgan Chase & Co and Barclays Plc believe that the Fed can initiate a 75 bps rate hike further, as the inflation rate is reaching fresh highs and corporate profitability is sliding down sharply. Hence, the US equity markets are now facing a brutal sell off and all the indexes are going red. But, the market is preparing hard to absorb the rate hike. However, commodity markets are going through major challenges, gold and silver markets are seeing a bearish trend.

The US Fed Vice Chair Lael Brainard thinks that two more 50 bps rate hikes will be 'reasonable kind of path'. In addition to that, Cleveland Fed President Loretta Mester thinks that 50 bps rate hikes will be important until 'compelling evidence that inflation is on the downward trajectory'.

The central bank will also continue reducing its balance sheet to nearly $9-trillion, for stepping into a 'restrictive' ground.