Fed 75bp shock week: fastest pace of tightening since 1994

The week of June 13-17 2022 reshaped the 2022 monetary tightening cycle. The Friday June 10 CPI print of 8.6% (vs 8.3% expected) with core accelerating to 6.0% destroyed the "peak inflation" narrative and forced the Fed's hand. By weekend reports (Hilsenrath WSJ leak) signaled a 75bp hike was on the table for Wednesday, after the Fed had previously signaled 50bps. Markets entered Monday with the S&P 500 down 3.9% on the Friday CPI, and selling continued through Monday and Tuesday.

The Fed delivered the 75bp hike on Wednesday June 15, the largest single-meeting hike since 1994. Powell explicitly acknowledged the pace was "unusually large" and walked back the "no 75" commitment from May. The S&P 500 initially rallied 1.5% on the decision before reversing hard on Thursday June 16 (-3.3%), one of the worst single-session losses of 2022. Bitcoin broke below $20,000 for the first time since December 2020. Growth stocks cratered. The yield curve inverted further as 2Y yields surged to 3.43%.

The week ended with a modest Friday bounce but the damage was done: the S&P 500 closed the week at 3674, down 5.8%, entering official bear market territory (-23.5% from January peak). The week established that 75bp hikes would be the new base case, raising terminal rate expectations to 4.0%+ from 3.0%. Four consecutive 75bp hikes would follow through November 2022, the most aggressive tightening pace since 1980.