Until recently, the professional observers of American monetary policy were largely unanimous in expecting the Federal Reserve to end the meeting ending on Wednesday with a half-percentage point hike in interest rates.

Three developments have shaken this forecast, with the consequence that numerous bank economists are now expecting a larger rate hike of 0.75 percentage points.

The Fed will announce its decision on Wednesday evening.

Winand von Petersdorff-Campen

Economic correspondent in Washington.

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Consumer prices rose 8.6 percent year-on-year in May.

Not only was that the highest rate of increase in 40 years, it was also unexpectedly high.

A survey by the Federal Reserve in New York weighs even more heavily.

The institute regularly asks citizens what price increases they are prepared for in the short and medium term.

Inflation expectations electrify central bankers even more than raw inflation rates.

The New York Fed reported that inflation expectations on a one-year time horizon rose sharply, to a record 6.6 percent in May.

By contrast, over the longer three-year period, they have remained reasonably stable at 3.9 percent.

The survey also revealed that consumers expect significantly higher spending.

So far, central bankers have been comforted by the notion that long-term inflation expectations remain firmly anchored near the 2 percent policy target.

Fear of a wage-price spiral

But the notion began to crumble after the University of Michigan reported the results of a regular consumer survey last Friday that respondents' long-term inflation expectations had climbed to their highest levels since 2008.

Central bankers are afraid of a spiral: If persistently high inflation raises expectations about future jobs, workers will demand higher wages to compensate for their loss of purchasing power.

This is all the easier for them when companies are desperately looking for skilled workers, as is currently the case in the USA.

Companies try to compensate for increased wages with higher prices, which triggers new wage demands.

Such a process would be difficult for the Fed to stop.

The third piece of critical news came Tuesday from the US Department of Labor, which measures producer prices that companies charge other companies.

They climbed by 10.8 percent compared to the previous year.

That was a touch less than in April, but still the sixth month in a row with double-digit percentage price increases.

Fed Chair Jerome Powell has made it a trademark of his monetary policy that he wanted to protect the financial markets from surprises and the world from shock reactions by making clear statements about the direction of monetary policy.

But since his last announcement before the period of silence, when he called a 0.5 percentage point hike in key interest rates appropriate, inflation figures have continued to deteriorate.

So it would now be a surprise if the Fed did not raise the key interest rate by 0.75 percentage points into the range of 1.5 and 1.75 percent.