The Federal Reserve is expected to accelerate interest rate hikes as stubbornly high inflation shows signs of becoming more widespread across the US economy.
Aditya Bhave, a US economist at BofA Global Research, forecasts quarter-point increases at the central bank’s next three meetings in December, January and March. Analysts at TD Securities have also raised their expectation to three consecutive 0.25 percentage-point rises, from two previously.
The change in outlook follows the latest Consumer Price Index figures, which showed prices rising 0.4% in October — more than economists had anticipated.
TD Securities said the report indicated that inflation was no longer being driven by just one or two factors. “Inflation is not trending in the right direction,” the firm said in a note to investors, adding that price pressures “appear to be broadening”.
October marked the third consecutive month in which prices increased faster than expected, according to Gregory Daco, chief economist at EY-Parthenon. He is forecasting rate rises in December and January.
Interest rate traders have put the likelihood of a quarter-point increase at the Federal Reserve’s December 8-9 meeting at nearly 90%. They also see a better-than-even chance of another rise at the January 26-27 gathering.
Some Federal Reserve officials have indicated that stronger action may be needed to bring inflation back towards the bank’s 2% annual target. Governor Christopher Waller said at a conference in London that policymakers should consider a half-point rise in December, warning that a smaller increase “would put our credibility at risk”.
Higher energy costs remain a major source of inflation, while strong corporate spending on data centres and equipment used to power artificial intelligence is also adding to price pressures.
Daco said those forces could keep inflation elevated into 2027 and put further pressure on household purchasing power. He added that a higher federal funds rate would raise borrowing costs across the country, including for consumer loans, while potentially pushing up longer-term interest rates.
