Don’t fight the Fed because this time could really be different

AFTER the release of data last week that showed a much-higher-than-expected 9.1 per cent year-on-year increase in the US consumer price index, Wall Street is now pricing in a 30 per cent chance of a 100-basis points rate hike at next week’s Federal Open Markets Committee meeting.

Whether or not the data between now and then justifies raising rates by a full percentage point remains to be seen, but the big question of course is: what next?

With unemployment at 3.6 per cent and interest rates still at ultra-low levels, there is a lot of room for the Fed to hike. Even with a 100-points hike, the absolute level of the federal funds rate will still be only at an upper bound of 2.75 per cent.