Barclays Sees 75bp July Hike Post-CPI (But Not 100bp)

Whereas Barclays had previously expected weaker growth and moderating inflation to see the Fed downshift to a 50bp hike in July, the June inflation report "blew that call out of the water – spectacularly." They now see a 75bp July hike, and another 50bp in Sept, but think that 160+bp priced for both Jul and Sep post-CPI is "too aggressive" and "unlikely to be realized".

• Barclays analysts saw June's report as "super-strong ... across the board", and based on the last 2 months, " the Fed could be justified in thinking that core inflation is both broadening and accelerating."
• But that said, they note that the chances of a 100bp hike in either July or Sept is "low", and "if the Fed genuinely wants to hike 100bp in July, they would need to signal it to markets before the black-out period starts on July 16."
• Overall, Barclays eyes several signs that "the pace of price increases should be starting to slow, any day now", with commodity prices receding, the dollar set to dampen import prices, credit card data suggesting a deceleration in consumer spending, wages moderating, retail goods discounting on the horizon, and overall, a "very sharp growth slowdown".