Largest interest rate hike in 28 years

On Jun 10, US released economic data for May, that the CPI surged 8.6% from a year ago, beating the forecast of 8.2% and exceeding Apr’s 8.2%, indicating the inflation remains elevated. As a result, US stocks tumbled that night.

Due to the higher-than-expected inflation. Market expectation for Fed’s Jun interest rate hiked was adjusted from 50 basis points to 75 basis points. On Jun 15, Fed announced to raise interest rate by 75 basis points. Though Fed governor Powell said interest rate hike of 75 basis points would not be a normal state to quell the panic, the hike had dealt a severe blow to stocks market as well as commodity futures.

On the day after the hike, besides that refined oil product to crude oil price spread reached a plateau, energy, chemicals, metals, precious metals, agricultural products all got impacted.

The higher-than-expected CPI in May leads to the burst of illusion, and it is realized that only by taking tough measures can the rising inflation be stemmed.

That is to say, now that the supply issue can not be resolved, the interest rate should be raised to curb the demand. To put it bluntly, the high inflation can only be reined in by economic recession. For Fed, it is a choice between recession and inflation.