U.S. Short-Term Rates Traders Boost Bets on June Fed Hike
- Swaps market prices in 87% chance of tightening by mid-year
- Cycle seen ending well before Fed’s own forecasts say it will
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U.S. short-term interest-rates traders are increasingly convinced that the Federal Reserve will start raising interest rates in June, and at the same time increasingly dubious that the central bank will raise rates as much as policy makers forecast.
On Friday, swaps linked to Fed meeting dates priced in odds as high as 87% -- 22 basis points of a 25 basis-point increase -- of a June rate increase. A week ago they priced in 16 basis points, a 62% likelihood.
Meanwhile, the market-implied slope of the Fed’s path continues to ease. Its peak suggests five to six hikes by the end of 2025 to a level more than 100 basis points short of Fed policy makers’ projection.