Odds for Fed Rate Hikes beyond 5-5.25% Grow after Strong Job Report

Odds for the U.S. Federal Reserve hiking interest rates in the next three meetings have increased after the report of job growth that rapidly ramped up significantly in January, while the unemployment rate reached the lowest level in 53 and a half year of 3.4%, indicating a tight labour market.

An increase in March is a lock for 25 basis points. Meanwhile, the odds for a rate hike in May is around 75% and around 40% in June for a quarter percentage point raise in each meeting.

Atlanta Fed President Raphael Bostic said that January’s strong jobs report raises the possibility that the central bank will need to increase rates to a higher peak than previously expected.

He noted that the Fed could even raise the rate by half-a-percentage-point, saying that was not his base case.

The market’s consensus previously expected the terminal rate to be around 4.75-5% after seeing inflation rate slowing down, however, the odds for the Fed to hike rates above 5-5.25% or even above that have now been increased.