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Traders Lean Toward Half-Point Fed Hike After Inflation Surge

  • Traders price in six hikes for 2022, lift short-term yields
  • U.S. 10-year note yield breaches 2% for first time since 2019
The Marriner S. Eccles Federal Reserve building in Washington, D.C.
The Marriner S. Eccles Federal Reserve building in Washington, D.C.Photographer: Stefani Reynolds/Bloomberg
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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.