Fed seen extending steep rate-hike path to cool heated inflation

May’s red-hot inflation hardened expectations the Federal Reserve will keep raising interest rates in half-point steps through September, with talk of an even larger move creeping into the conversation.

Investors increased bets on a 75 basis point hike after data Friday showed consumer-price growth accelerating to a fresh 40-year high, though Fed watchers doubt Chair Jerome Powell would take that step.

“Even in these fast-moving times, the Fed is likely to be reluctant to surprise markets, which keeps the chance of a 75 basis-point surprise at next week’s meeting small,” said Sarah House, senior economist at Wells Fargo & Co. “However, we could see Chair Powell at the post-meeting press conference more clearly signal that 75 basis-point hikes are on the table for future meetings if we don’t see a let-up in inflation.”