With rate hike likely, will Fed increase pace for rest of year?

The Federal Reserve is all but certain to raise interest rates this week. Also on tap: new readings on inflation, retail sales and industrial production.

Inflation has been edging up in recent months, at least partly because of the fading effects of a drop in cellphone service charges in March 2017 on the annual change in total consumer prices. And while higher gas prices have pushed up overall inflation, a core measure that strips out volatile food and energy items and that the Fed monitors more closely has advanced modestly. Nomura economist Lewis Alexander figures those trends continued in May; he thinks core inflation “will accelerate only gradually.”

Economists estimate the Labor Department on Tuesday will report that overall inflation rose a modest 0.2% last month, pushing average annual price increases to 2.7% from 2.5%. They reckon the core reading also edged up 0.2%, nudging the yearly gain to 2.2% from 2.1%.

Many economists believe tempered increases in inflation will allow the Fed to raise interest rates gradually. Fed fund futures markets say there’s a 91.3% chance the central bank will lift rates at a meeting Wednesday for the second time this year. The big question is whether Fed policymakers’ median forecast will rise to a total four hikes this year from the current three. Economists are divided. With the economy picking up recently and unemployment falling, Alexander believes the Fed’s median projection will increase to four. But noting that 10-year Treasury yields have risen, pushing up corporate borrowing costs, while stock prices have moderated, Morgan Stanley predicts the Fed will maintain its estimate of three increases.

Thursday, the Commerce Department releases May retail sales figures.