Markets far more de-risked into June FOMC. And +75bp brings rates closer to market expectations.

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Why Fed 75bp hike post-FOMC is a logical response to U Mich survey and political considerations

Since Friday's CPI (higher CPI) and U Mich Consumer Confidence survey (rise in consumer inflation expectations), consensus expectations for June is now a 75bp hike (vs 50bp prior). This is a break from the forward guidance given by the Fed and has prompted multiple interpretations of this move.

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ultimately, the Fed move seems appropriate given the rise in consumer expectations for inflationmany forward indicators for inflation point to a downturn coming, including rollovers in housing (lumber), autos/used cars (prices falling), apparel and furniture (piling inventory), supply-chain related (easing)inflation has been primarily goods/supply-chain driven, but the rise in gasoline and tight labor is shifting the perception towards inflation sticking. prior studies (below) show that consumer expectations for inflation collectively are perceptually accurate on inflation (r-squared >90%)and that this change in consumer forward expectations actually influences interest rates historically (2-quarter lead)hence, if inflation ...
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