Geoffrey Smith 

Investing.com – A Federal Reserve interest rate rise of 75 basis points will be back in the discussion next week after another remarkable increase in U.S. consumer prices in May. 

In the wake of an announcement by the Labor Department that the Fed Funds Futures contract on the CME fell 13 basis points, to 97.27, the CME contracted for the 30-day Fed Funds futures, which are widely used to hedge short-term interest rates risk, dropped to 97.27. This means that the Fed Funds target range will rise by more than 50 basis point when the policy-making committee of the central bank meets Tuesday and Wednesday. 

“Together with another strong rise in core prices raises the odds that the Fed will need to extend its series of 50bp rate hikes into the fall, and even opens the door to a larger 75bp move at next week’s FOMC meeting,” Capital Economics analysts said in a note to clients.

After the Fed’s previous meeting, Chair Jerome Powell stated that half-point hikes would be considered at the following two meetings. However, calls for greater drastic measures since then have mostly come from outside of the central bank. American President Joe Biden said that after meeting Powell, he valued the Fed’s independence and expected the Fed to keep inflation under control.

Other interest rate products also saw strong effects from the inflation report. It rose by 13 basis points, to 2.95%. This is its highest level since November 2018. Although the sensitivity to inflation expectations is greater, it rose slightly by 7 basis points, and traded at 3.11%. In the meantime, dollar’s highest level in three weeks was driven by concerns that dollar interest rates would remain higher. The, which measures the greenback’s performance against a basket developed-market currencies, had risen 0.9% to 104.11 by 10 AM ET (1400 GMT).