Mar 16, 2021 - Economy & Business

Investors are betting the Fed will hike rates sooner than it says

Jerome powell at the podium.

Fed Chair Jerome Powell. Photo: Alex Wong/Getty Images

While the Fed's most recent projections have it holding U.S. rates at near 0% through the end of 2023, investors are ramping up market bets that the central bank will be forced to act sooner.

State of play: Money markets have been moving toward pricing in the beginning of Fed tightening by the end of next year and Eurodollar contracts reflect a full quarter-point hike coming around March 2023 and a 75% chance of a rate hike by December 2022, Bloomberg reports.

Watch this space: The rising expectation for a move from the Fed is even creeping into Fed fund futures contracts this year.

  • Data from CME Group's FedWatch tool show investors are pricing in a 10% chance of a rate hike by September, with a 0.3% chance of two hikes.
  • Interestingly, those odds remain the same through December.

What they're saying: “The market has no patience for the Fed being patient,” David Robin, a strategist at TJM Institutional Securities, tells Bloomberg.

  • If Powell on Wednesday “pushes back on the current pricing, the markets will likely think he is in denial and therefore accelerate the timing and the magnitude of the Fed’s first rate increase.”
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