© Reuters
Written by Yassin Ibrahim
Investing.com – The US dollar rebounded from a one-year low as bets for a rate hike in May jumped after Federal Reserve officials signaled there was no willingness to raise the white flag on another hike as inflation remains too high .
by 0.56% after declining on the day to 100.47, which is the lowest level since April of the year.
Federal Reserve Governor Christopher Waller on Friday called for more interest rate hikes, saying the job on inflation is “far from over” as inflation remains “very high”.
In reaction to his speech, market pricing of the price path pushed the probability of a 25 basis point rise in the May meeting into certainty and raised the probability of a rally in June from a slim percentage to around 15%, according to a note from Morgan Stanley (NYSE: NYSE).
A tool showed that bets on a 25% rate hike at the Fed’s May meeting jumped to 84% from 65% last week.
The hawkish comments arrived just days after data showed that core inflation fell more than expected, but core inflation, which excludes volatile food and energy prices and is closely watched by the Federal Reserve, held steady without falling.
“I interpret this data as indicating that we haven’t made significant progress on our inflation target, which leaves me roughly in the same place on the economic outlook that I was at the last FOMC meeting, and on the same path for monetary policy,” Waller added.
In recent weeks, investors have focused more on the pace of credit tightening amid expectations that lending cuts will dampen economic growth, supporting the Fed’s fight against inflation and reducing the Fed’s need to raise interest rates.
Waller said financial conditions have not tightened significantly, adding that a strong and tight labor market as well as above-target inflation means that “monetary policy needs to tighten further.”
While bets have jumped on another rate hike, investors are still holding onto expectations that the Federal Reserve will have to cut interest rates later this year.
“Rate cuts later this year remain flat, with little change in the expected level of the December 2023 federal funds rate over the past two weeks,” Morgan Stanley added.
