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Bill Dudley

The Fed Has More to Do Than the Market Recognizes

The central bank might need to raise interest rates more than twice as high as investors anticipate.

May contain surprises.

May contain surprises.

Photographer: Stefani Reynolds/Bloomberg

Investors are increasingly betting that the Federal Reserve will have to raise interest rates sooner than previously expected to keep inflation in check. A few months ago, futures prices implied that “liftoff” from the current near-zero level wouldn’t occur until 2023 or later; now they suggest it’ll happen near the middle of next year.

There hasn’t, however, been a similar shift in how high investors expect interest rates to go. Markets still see a peak in this business cycle of less than 2%. I think there’s a good chance they’re mistaken.