FED MAY PULL A VOLCKER

Could hike rates 1%

There’s a chance the Federal Reserve could take extreme action to curb rampant inflation, including hiking interest rates by as much as a full percentage point when the central bank concludes its meeting Wednesday, analysts said Tuesday.

As of last week, the consensus on Wall Street had been that the Fed would increase rates by 50 basis points, or 0.5%. But on Monday, multiple news outlets including The Wall Street Journal, Bloomberg and CNBC reported there’s a distinct possibility that the boost could be 0.75%.

As of Tuesday, however, a fresh debate was brewing as to whether the central bank may go even further.

Steven Englander, a top analyst at Standard Chartered Bank, told Bloomberg there was a 10% chance that Powell would have a “Volcker moment” and opt for the 100-basispoint hike.

In the late 1970s, thenFed Chair Paul Volcker aggressively hiked interest rates, which reduced soaring inflation, but tipped the economy into a recession.

“The Fed’s trying to erase any perception that they’re behind the curve,” Englander said.

“Fifty was the big round number six months ago. Meanwhile, 75 is a very middling type of hike. So the Fed might say: ‘Look, if we want to show commitment, let’s just do 100.’ ”

Wall Street closed mostly lower Tuesday, a day after tumbling into a bear market. The S&P 500 slipped 0.4% after another day of unsteady trading. Gains by several big technology companies, including Oracle, helped send the Nasdaq up 0.2%, while the Dow fell 0.5%.

No longer extreme

Englander said that measures once considered drastic are now widely expected.

“The Fed has been remarkably successful in having 50 the baseline,” Englander said. “Fifty was the neutron bomb even six months ago.”

Fed-dated swaps are now pricing in a 75-basispoint increase over the next three policy meetings, according to Bloomberg.

Goldman Sachs analysts are warning that a 100-basis-point rate bump would tip the economy into a recession, according to Markets Insider.

Wall Street traders expect the interest rate to approach 4% next year.

Last week, the federal government released data showing that the Consumer Price Index remained at 8.6%, the highest since 1981.