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Traders Start to Consider Even Bigger Fed Rate Hikes After Hot CPI

  • Pricing of peak of fed funds increases to about 4.3%
  • Five-year Treasury yield is once again higher than 30-year
Bloomberg business news
The consumer price index rose 0.1% from July.Source: Bloomberg
Updated on

Rates traders are now betting the Federal Reserve will lift its benchmark rate by at least three-quarters of a percentage point next week, with some chatter that the increase might need to be even bigger than that after consumer-price inflation data came in hotter than expected.

Investors are also driving up expectations for just how high they reckon the central bank might ultimately push policy rates early in 2023 -- toward around 4.3% -- although it appears that concern is mounting about whether that could also crimp economic activity in a way that forces them to re-ease policy before 2023 is out. Swaps linked to Fed meeting dates suggest that the benchmark will be back down to less than 3.8% by the end of that year.