Traders are betting Federal Reserve Chair Jerome Powell’s tough inflation talk means the central bank is willing to speed up the pace of interest rate hikes.
Traders are betting Federal Reserve Chair Jerome Powell’s tough inflation talk means the central bank will step on the gas to drive up interest rates even faster than expected just last week. In the fed funds future markets, odds are rising that the Federal Reserve will become more aggressive and raise interest rates by 50 basis points — or a half-percent — at each of its next two meetings. According to the CME FedWatch Tool, the probability is better than 70% that the Fed reaches 2.25% by the end of the year. Powell surprised the market when he spoke at the National Association for Business Economics on Monday. He said that „inflation is much too high,“ adding that the central bank „will take the necessary steps to ensure a return to price stability.“ Fed funds futures for May and June have moved higher, as they did across the rest of the year and into 2023. Ralph Axel, a rates strategist at Bank of America, said there are now 1.184 basis points or 4.7 additional quarter-point rate hikes priced into fed funds futures by July. „There’s a 73% chance of a 50 in May, and a 63% chance of a 50 in June,“ he said. The July futures are priced for a quarter-point move. The market is pricing in more rate hikes than the Fed presented in its own forecast last week.
