Traders Lean Toward Half-Point Fed Hike After Inflation Surge

Traders ramped up wagers that the Federal Reserve will raise interest rates more aggressively after inflation again exceeded expectations, with futures pricing in a greater than 50% chance the central bank will boost rates by a half-percentage point next month for the first time since 2000.

The specter of increasing price pressures drove money markets to price in a full percentage point of rate increases through July, the equivalent of a traditional quarter-point move at each of its next four meetings, and slightly more than six such moves in 2022. Treasuries fell sharply, driving the policy sensitive two-year note’s yield up as much as 15 basis points to about 1.51%, the highest since January 2020, and the 10-year yield breached 2%, a level not seen since 2019.