Beautiful Virgin Islands

Tuesday, Jun 24, 2025

Inflation is so hot the Fed may have to hike interest rates like it's 1994

Inflation is so hot the Fed may have to hike interest rates like it's 1994

Inflation is so hot that Wall Street banks are falling over each other to predict the dramatic moves the Federal Reserve will have to make to cool prices off.

Goldman Sachs raised eyebrows earlier this week by forecasting the Fed will raise interest rates by a half a percentage point in each of the next two meetings.

Morgan Stanley and Jefferies quickly endorsed that view, even though the Fed hasn't done a rate hike of that size at a single meeting since 2000.

Now, Citigroup is upping the ante. Citi economists said Friday they expect the Fed will boost interest rates by a half a percentage point during each of the next four meetings. And Citi left the door open for even more aggressive steps, such as big rate hikes at every remaining meeting this year.

The aggressive call underscores the level of concern about the inflation outlook, which has darkened considerably in recent weeks because of Russia's invasion of Ukraine and the ensuing spike in food, energy and other commodity prices.

"With inflation likely to be very strong in March...and to remain elevated in April, we think it will be hard for Fed officials to argue why they would not raise 50 [basis points]," Citi economists wrote, referring to basis points.

Citi warned that if inflation "unexpectedly accelerates" or long-term inflation expectations rise "rapidly," it's possible the Fed will hike rates by more than half a percentage point in a meeting.

1994 bond market meltdown


Normally, the Fed raises rates gradually, moving in quarter-point increments. But with consumer prices surging at the fastest pace in 40 years, these are not normal times.

Keep in mind that just a year ago, Fed officials indicated they saw no interest rate increases until at least 2024. Now, investors are bracing for six more rate hikes just this year.

The last time the Fed raised interest rates by half a percentage point or more in four straight meetings was late 1994-early 1995. That series of aggressive rate hikes helped set off chaos in financial markets, with bond markets melting down and hedge funds collapsing. Months later, the Fed was forced to reverse course and cut interest rates.

'There is an obvious need'


Fed Chairman Jerome Powell signaled this week that officials are prepared to step up their belated fight against inflation.

"There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level," Powell said at an event hosted by the National Association for Business Economics.

That's Fed speak for the central bank going from pedal-to-the-metal support for the economy to hitting the brakes. That makes sense given that inflation is high and unemployment is low.

But the harder the Fed hits the brakes, the greater the risk of causing an accident that could potentially wreck the financial markets, the real economy, or both.

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Airlines Evaluate Flight Cancellations Amid Escalating US-Iran Tensions
Starmer Invites Innovators to Join Government Talent Scheme
UK Economy’s Strong Opening Quarter Shows Signs of Cooling
Harrods Seeks Court Order to Secure Al Fayed Estate for Victims
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
WATCH: Israeli forces show the aftermath of a massive airstrike at Iran's Isfahan nuclear site
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
We have new information and breaking details to share about what is shaping up to be a historic air campaign tonight
Six Massive Bombs Dropped on Fordow; Trump: 'A Historic Moment for the U.S., Israel, and the World'
Fordow: Deeply Buried Iranian Enrichment Site in U.S.–Israel Crosshairs
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Pakistan to nominate Trump for Nobel Peace Prize.
BBC Demands Perplexity AI Immediately Stop Using Its Content
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
Political Turmoil Resurfaces in Belgium Amid Economic Concerns
Fed policymakers divided on timing of interest rate cuts
Trump signals imminent agreement with Harvard University
Inheritance tax referendum alarms Swiss billionaire community
Japan cancels bilateral security meeting amid US defence demands
AI skeptic Emily Bender warns that ‘the emperor has no clothes’
Israel Confirms Assassination of Quds Force Commander in Tehran
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Iranian Military Officers Reportedly Seek Contact with Reza Pahlavi, Signal Intent to Defect
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Vietnam Emerges as Luxury Yacht Destination for Ultra‑Rich
Plans to Sell Dutch Embassy in Bangkok Face Local Opposition
China's Iranian Oil Imports Face Disruption Amid Escalating Middle East Tensions
Trump's $5 Million 'Trump Card' Visa Program Draws Nearly 70,000 Applicants
DGCA Finds No Major Safety Concerns in Air India's Boeing 787 Fleet
Airlines Reroute Flights Amid Expanding Middle East Conflict Zones
Elon Musk's xAI Seeks $9.3 Billion in Funding Amid AI Expansion
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
Israeli Airstrike Targets Iranian State TV in Central Tehran
President Trump is leaving the G7 summit early and has ordered the National Security Council to the Situation Room
Taiwan Imposes Export Ban on Chips to Huawei and SMIC
Israel has just announced plans to strike Tehran again, and in response, Trump has urged people to evacuate
Netanyahu Signals Potential Regime Change in Iran
Juncker Criticizes EU Inaction on Trump Tariffs
EU Proposes Ban on New Russian Gas Contracts
Analysts Warn Iran May Resort to Unconventional Warfare
Iranian Regime Faces Existential Threat Amid Conflict
×