Before anyone had time to fully parse yesterday's inflation numbers, the rumbling had already begun on trading desks and research shops: Maybe the Fed will, in two weeks' time, raise interest rates by a full percentage point — the most at a single meeting in its modern history.

• This possibility shows the jam the Fed has gotten itself into.

Why it matters: Fed officials seek to convey a whatever-it-takes sense of urgency. That has put them in a situation in which high inflation readings demand an ever-escalating series of policy moves that, taken to their logical conclusion, end with a cratering economy.

State of play: Just last month, a high May inflation reading drove Fed leaders to make a last-minute shift to raise interest rates by 0.75 percentage points, not the half-point they had long signaled.

• Here we go again. Wednesday's release showed a 9.1% rise in the Consumer Price Index over the last year — and perhaps more significantly, the uptick of monthly core inflation to 0.7% in June.
• It was a "major league disappointment," as Fed governor Christopher Waller said in a speech this morning.
• It set off alarm bells throughout the financial world that recent history would repeat and, by day's end, futures markets would be fully priced in a one-percentage-point rate hike in late July.

Between the lines: The handful of officials who have spoken publicly since the release have appeared open-minded about whether escalating inflation requires an escalating policy response.

• In Waller's speech today, he said he currently favors sticking to a 0.75 percentage point rate hike, but that if retail sales and housing data due out in the coming days are "materially stronger than expected, it would make me lean towards a larger hike at the July meeting."

The risk: To the degree the Fed responds to high inflation readings not just with rate increases, but with increasingly larger rate increases, it's all but inevitable the Fed will over-tighten monetary policy and cause more economic pain than is necessary.

• Followed to its logical conclusion, it would mean eventually ending up with an excessively restrictive policy, as the Fed makes ever-bigger policy moves in response to what happened in the past rather than what will happen in the future.

What they're saying: "Simply chasing headline inflation higher with ever-larger units of hiking and a backward-looking outcome-based rule for stopping raising rates is likely to end badly," wrote Krishna Guha, Evercore ISI vice chairman, in a research note.

• As Kansas City Fed president Esther George, generally a monetary hawk who nonetheless dissented at the June meeting, said in a speech this week, "Moving interest rates too fast raises the prospect of oversteering."

The bottom line: The Fed has spent the last year behind the curve in fighting inflation. But there are perils in trying to fix that all at once.

As G20 finance ministers gather in Bali this week, the International Monetary Fund published a blog post warning about the global economy's "sea of troubles."

• "It is going to be a tough 2022 — and possibly an even tougher 2023, with increased risk of recession," IMF managing director Kristalina Georgieva wrote.

Details: The IMF is calling on countries to do "everything in their power" to slow price growth as the global inflation crisis mounts — while urging governments to carefully assess the use of fiscal policy to support the economy.

What they're saying: "New measures must be budget-neutral — funded through new revenues or expenditure reductions elsewhere, without incurring fresh debt and to avoid working against monetary policy," Georgieva wrote.

• She also wrote that reducing debt is an "urgent necessity" in developing economies with debt denominated in foreign dollars that are most vulnerable to soaring borrowing costs.

Between the lines: This is somewhat of a throwback to calls for fiscal austerity that the IMF had moved away from, most recently during the onset of the pandemic.

What's next: The IMF will likely slash its global growth forecast again later this month, according to the blog post.

• In April, it projected the global economy would slow to 3.6% growth in 2022, down from 4.4% (before Russia invaded Ukraine).