Inflation Shock: June CPI Surges to 9.1%, Fed Hike Rate Bets Accelerate As Core Prices Climb; Stocks Slump

Bets on a 1% Fed rate hike later this month, essentially non-existent last week, are starting to accelerate following a faster-than-expected reading for June inflation.

Updated at 8:47 am EST

U.S. inflation accelerated to a fresh forty-year last month, data from the Bureau of Labor Statistics indicated Wednesday, challenging bets  that consumer price pressures are starting to peak in the world’s biggest economy.

The headline consumer price index for the month of June was estimated to have risen 9.1% from last year, up from the 8.6% pace recorded in May and firmly ahead of the Street consensus forecast of 8.8%. The June reading was the fastest since December of 1981.

On a monthly basis, inflation was up 1.3% the BLS said, compared to the May increase of 1% and again topping the Street forecast of 1.1%.

So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.7% on the month, and 5.9% on the year, the report noted, with the both the annual and monthly reading coming in ahead of the Street consensus forecast and near the highest levels since 1983.

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On Wall Street, futures tied to the S&P 500 are indicating a 68 point opening bell gain while those liked to the Dow Jones Industrial Average are priced for a 400 point move to the upside. Futures linked to the tech-focused Nasdaq are indicating a 280 point advance.

Benchmark 2-year Treasury note yields are trading at 3.159% while 10-year notes are pegged at 3.025%. The dollar index, which tracks the greenback against a basket of its global peers, was marked 0.42% higher at 108.518

The CME Group’s FedWatch tool is showing an 85.8% chance of a 75 basis point rate hike late this month, as well as a 14.2% chance of the 100 basis point move, a bet that was essentially at 0% just a week ago.

 The Atlanta Federal Reserve’s GDPNow forecasting tool, a real-time benchmark, suggests the U.S. economy is shrinking at a 1.2% clip, following a likely contraction in both the first and second quarters of the year.

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