Markets Raise Bets on Fed Rate Hike in June as Inflation Pressures Rise

The markets have increased their bets on a rate hike from the Federal Reserve in June after last week’s hotter-than-expected inflation data.

As of last Friday (May 26), the CME FedWatch Tool indicated that futures traders predicted a roughly 66% chance of a quarter point rate hike in June. If that happens, it will be the eleventh consecutive rate hike by the central bank.

That followed two key pieces of economic data that came in hotter than expected last week: the annualized growth rate of gross domestic product in the first three months of the year was 1.3%, up from an initial estimate of 1.1% reported in April, and the yearly growth rate of prices for personal consumption expenditures was 4.4%, up from 4.2% in March, according to new data from the Commerce Department.

There has only been a 17% possibility of a rise over the past week. As of now, 75% of market participants expect an increase by July at the latest.

On Friday, IMF managing director Kristalina Georgieva cautioned that higher US interest rates would be needed for a longer period to curb inflation that had been higher than expected. She also mentioned that the global economy would be thrown into turmoil if trust in US Treasury markets were to decline.