Traders ramp up bets to see five U.S. Fed hikes this year
BNN Bloomberg
Money markets are now fully pricing five rate increases from the U.S. Federal Reserve, as traders recalibrate bets after Chair Jerome Powell struck a hawkish tone at this week’s meeting.
Traders are boosting bets for higher borrowing costs, with money markets now expecting five interest-rate increases from the U.S. Federal Reserve this year and another four from the Bank of England.
Investors are also speculating whether Fed Chair Jerome Powell will frontload hikes by making a rare 50 basis-point move in March, after he struck a hawkish tone at this week’s meeting. The wagers rippled through markets, with short-dated bonds slumping and the dollar rallying.
Money markets have priced 30 basis points of Fed tightening in March, which means some see a chance of a larger move than the conventional 25 basis points. By the year-end, traders are factoring in five increases to take the Fed funds rate to 1.5 per cent, from 0.25 per cent currently.
“This signals people are getting serious about a 50-basis-point hike,” said Rishi Mishra, an analyst at Futures First.
The tone of Powell’s press conference leaves no doubt that price stability takes precedence over other policy goals, meaning there’s even an upside risk of six hikes, Bloomberg Intelligence’s Anna Wong wrote in a note.
