Markets bet on sharpest pace of Fed tightening since 1994
BNN Bloomberg
Money-market traders are betting the Federal Reserve is heading for its most aggressive monetary policy tightening in almost three decades as it fights a commodity-driven inflation spike.
Money-market traders are betting the Federal Reserve is heading for its most aggressive monetary policy tightening in almost three decades as it fights a commodity-driven inflation spike.
They are pricing in a further 225 basis points of interest-rate hikes by the end of the year on top of the 25 basis points already delivered in March.
The Fed hasn’t done that much tightening -- 250 basis points -- in one year since 1994, a famously brutal year for bond investors that even included a 75 basis-point hike. The last year there was more tightening was in the early 1980s, when Paul Volcker was in charge of the central bank.
With U.S. inflation heading for 8 per cent, a rate not seen in 40 years, Fed officials have adopted a decidedly more hawkish tone. The prospect of aggressive tightening has already led to a global bond rout this year, and the latest move in market bets follows comments by Governor Lael Brainard that the central bank will continue tightening monetary policy methodically.
“This boils down to what does Brainard mean by ‘methodical’,” said Marc Ostwald, global strategist at ADM Investor Services.
