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Fed Dots Don't Connect for Bond Traders Scorning Rate-Hike Path

  • Officials' `dot plot' forecasts seen falling by quarter-point
  • Futures priced for shortest tightening cycle in decades
Bloomberg business news

Is the Market Underestimating the Fed?

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The derivatives market is sending unprecedented signals that the Federal Reserve is mistaken in its policy-rate path.

Even as officials argue that higher borrowing costs are warranted, the bond world sees the potential for the shortest cycle of rate increases in almost two decades. At one point last week, traders saw the Fed as more or less done after December’s liftoff, a stance that Deutsche Bank AG calls unheard of after tightening has just begun. There’s a similar aberration in how derivatives imply the Fed target will barely budge for two years, something typically seen only before central-bank stimulus, TD Securities Inc. says.