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The Market May Be Guilty of Gambler's Fallacy on Fed Hikes

  • ‘Trump runs the risk of overstimulating,’ Perpetual says
  • History of undershooting on rate rises looms over investors
Bloomberg business news

BMO's Gallo Sees Yellen Worried About Market Expectations

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When successive coin flips turn up heads, a gambler’s instinct would dictate the next toss results in tails -- even if the odds are still 50-50.

That’s the so-called gambler’s fallacy, and financial markets are at risk of making a similar mistake of letting past precedent have influence when it comes to the outlook for Federal Reserve interest-rate hikes, some investors warn. While traders have been lulled by a record of the Fed proving less hawkish than expected, things could change over the coming year.