Bond Veterans Say Market Wrong to See Fed Hikes Ending Near 2%
- Surging inflation has traders awaiting bigger rate repricing
- That could spell pain for the unprepared, from bonds to stocks
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To a growing faction of Wall Street bond veterans, investors are making a major miscalculation by betting the Federal Reserve’s coming cycle of interest-rate hikes will end with its key rate not too far from where it is now.
As bearishness swept through the markets Thursday after inflation accelerated at a faster-than-expected pace, traders boosted their expectations for where the fed funds rate will wind up to around 2%, up by almost a full quarter-point hike. That still implies a relatively shallow series of increases to below the 2.5% peak in 2018, when the Fed was last tightening monetary policy.