FOMC Set to Hold Rates at 3.50%-3.75% as May CPI Hits 4.2%
Updated
Updated · abfjournal.com · Jun 15
FOMC Set to Hold Rates at 3.50%-3.75% as May CPI Hits 4.2%
3 articles · Updated · abfjournal.com · Jun 15
Summary
A 4.2% annual CPI reading for May — the hottest in three years — has all but locked in a Fed hold at the June 16-17 meeting, with futures implying a 98%-99% chance of no change.
Core inflation stayed firm at 2.9% and energy prices jumped 23.5% from a year earlier, reinforcing Chair Kevin Warsh's higher-for-longer stance and pushing expected rate cuts further out.
Markets already reflected that shift: the 10-year Treasury yield ended near 4.53%, close to a one-year high, while an AI-chip selloff erased about $1.4 trillion in value and pulled the Nasdaq down roughly 5% for the week.
Credit stress signals also worsened, with redemption requests at large perpetual-life BDCs surging 217% quarter over quarter and First Brands moving closer to liquidation after a Houston judge cleared voting on a wind-down plan.
For middle-market borrowers and lenders, the message is to underwrite against flat-to-higher rates through midyear, with tighter covenant stress tests, stronger collateral controls and less reliance on refinancing relief.
Can Fed rate hikes tame inflation without worsening the American household affordability crisis?
Without 'forward guidance,' how will the Fed signal its next move against inflation?
Will AI's productivity boom arrive in time to solve the Fed's inflation problem?
Fed at a Crossroads: Inflation Surges, Political Pressure Mounts, and Warsh’s Policy Shift Amid Geopolitical Shocks
Overview
The report highlights how rising inflation, driven mainly by surging energy prices due to the war in Iran and the disruption of the Strait of Hormuz, is creating a major challenge for new Fed Chair Kevin Warsh. As gasoline prices soar and inflation intensifies, the Federal Reserve faces pressure to raise interest rates to cool the economy and control price growth. Warsh’s preference for using 'trimmed mean estimates' to measure inflation is controversial, especially as the labor market remains strong. This complex situation demands clear policy direction to maintain market confidence and ensure economic stability.