Fed steps up tightening amid worsening inflation

The Fed’s larger 75bp rate hike came as little surprise to the markets following the worse than expected May CPI data and Monday’s tip-off in the Wall Street Journal. Our view that inflation will remain uncomfortably high and that the economy will avoid a recession means we expect the Fed to follow through on plans to continue tightening rapidly, with rates peaking at the upper end of the 3.5%-4.0% range officials now expect early next year.