These rate hikes will address rapid inflation, but it is widely known they could spark a recession in the U.S.

From CNBC. Markets are beginning to anticipate an even faster pace of interest rate hikes, and Federal Reserve officials apparently are contemplating the possibility as well.

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Who is praying on the wall?

Central bank policymakers are entertaining the idea of a 75 basis point increase to the Fed’s benchmark funds rate that banks charge each other for overnight financing, according to CNBC’s Steve Liesman.

Changes in the economic outlook, including the likelihood that inflation hasn’t peaked and is running well ahead of the Fed’s 2% goal, could influence a bigger rate move during the two-day meeting that concludes Wednesday.

A 75 basis point move is “a real distinct possibility,” Liesman said….

Market pricing reflected the changed expectations.

The CME Group’s Fed Watch tool, which had been strongly pointing to a 50 basis point hike this week, was showing a 96% probability of a 75 basis point move as of Monday evening.

In recent days, traders in the interest rate futures market have been cranking up their bets that the Fed will go beyond its traditional 25-basis-point hiking pattern.

Recent jumps in bond yields have pointed to the possibility of a more aggressive Fed at the conclusion of the two-day Federal Open Market Committee meeting Wednesday.

The 10-year Treasury yield shot up to 3.37% Monday, a surge of 21 basis points, while the 2-year yield, which mostly closely tracks Fed intentions, accelerated to 3.34%, a jump of nearly 30 basis points. A basis point is one one-hundredth of a percentage point.

The Fed uses interest rate increases as a way to tamp down demand, which has generated inflation levels running at more than 40-year highs. Markets expect the central bank to continue jacking up rates through at least the end of the year as it tries to pull inflation down nearer its 2% target….

Friday’s consumer price index report showed headline inflation in May running at an 8.6% pace. That same day, the University of Michigan’s widely followed consumer sentiment gauge fell to an all-time low, and the report also indicated a ramping up of inflation expectations….

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(Excerpt from CNBC. Photo Credit: Canva)