By Darrell Hassler

June 22 (Bloomberg) -- Interest-rate futures are starting to suggest the
Federal Reserve may increase its key interest rate by as much as 50
basis points when policy makers meet next week.

The yield on the federal funds futures contract for July rose 1 basis
point, or 0.01 percentage point, 5.28 percent at the Chicago Board of
Trade, putting the odds at about 12 percent for an increase to 5.5
percent on the overnight rate for loans between banks on June 28 and 29.

Expectations for Fed increase have climbed since Fed Chairman Ben S.
Bernanke's June 5 comments that signs of inflation are ``unwelcome.''
The government said last week that consumer prices excluding food and
energy rose more than forecast for a third consecutive month in May.

``A 50 basis point move would help cement Mr. Bernanke's anti-inflation
credibility issues that are still perceived by man in the market as
being a bit too soft,'' Man Financial interest rate broker John Brady
said in a note to clients today.

Futures already suggest a 25 basis point increase to 5.25 percent in
certain next week. Odds that rate will be 5.5 percent in August are 83
percent.

Futures are agreements to buy or sell assets at a set date and price.
Contracts on interest rates are settled in cash. Fed funds futures
settle at the fed funds effective rate, which is the average of all
overnight rates for the month.

Excluding food and fuel, consumer prices rose 0.3 percent in May, the
Labor Department said on June 14, more than the median 0.2 percent
forecast of 79 economists in a Bloomberg News survey.