Money markets are betting on an interest rate hike at the next FOMC meeting on June 13-14 with a higher probability, following the publication last Friday of the Fed’s favorite data to monitor US inflation trends, i.e. the PCE core.
The PCE rose in April, on a monthly basis, by 0.4%, accelerating the pace compared to the previous growth, equal to +0.1%.
On an annual basis, the trend in headline inflation was an increase of 4.4%, over the +4.2% in March.
Even stronger was the acceleration of the core PCE which, on an annual basis, amounted to +4.7%, beyond the estimated 4.6% rise and more than the +4.6% seen in April.
Month-on-month, core PCE advanced +0.4%, more than the +0.3% expected and, again, at a faster pace than the previous +0.3%.
According to data released by the CME Group, markets are now betting on a US rate hike by 25 basis points at the June meeting with a 56% probability, much higher than the 17% the previous week.
At the same time, the probability of a squeeze by July has risen to 75%.
The Federal Reserve led by Jerome Powell raised rates on May 3 for the tenth consecutive meeting, bringing them to the new range of between 5% and 5.25%, the record since July 2006, with a rise of 25 basis points.