The Fed’s speed of rate hikes essential to fight inflation, but puts growth in jeopardy

It’s typical of the financial markets’ dysfunctional relationship with the US Federal Reserve that the same action that had petrified markets just a month ago could well be met with a sigh of relief and even a stock-market rally after the Fed’s next meeting is over on Wednesday (Jul 27).

The markets would almost certainly be relieved by a monstrous 75-basis point increase because, for the first half of July, an even beastlier 100-basis-point hike seemed all but likely. The move was anticipated after data showed that US consumer prices rose a staggering 9.1 per cent the previous month from a year earlier.

After all, Fed chairman Jerome Powell had orchestrated June’s shocking 75 basis-point move in a direct response to the report that consumer prices rose 8.6 per cent in May on an annual basis. On that occasion, however, Fed officials, including Powell himself, confirmed the Wall Street whispers about a three-quarter-of-a-percentage point move during the quiet period before the Fed meeting.