Investors are bracing for the possibility that a second year of stubborn inflation could force the Federal Reserve to bring interest rates higher than they have been in more than 20 years. Wall Street pros spent much of this year betting that the Fed’s already aggressive rate moves would quickly cool the economy and stem rising prices. But last week’s better-than-expected jobs report was the latest sign of economic strength to catch investors off guard. Now, more are seriously considering whether the central bank’s target rate will rise as high as 6% before Fed officials take their foot off the brake—a level not reached since just before the dot-com bust in 2000, and one that could spell far more pain ahead for stocks and bonds. “It’s really hard to see any progress on inflation in the next four or five months. Not enough to satisfy the Fed,” said Jim Vogel, manager of interest-rate strategies at FHN Financial. Mr. Vogel believes rates will get to 6% before the Fed is convinced that inflation has been tamed.
Source: WSJ.com
