From Rate Cuts to Rate Hikes? Market Expects 10% Probability of Fed Rate Hike in April

Investing.com - The likelihood of a Federal Reserve rate hike has sharply increased. Overnight index swap data shows a 10% chance of a rate hike in April and a 20% chance in October, marking a significant shift in market expectations.

Upgrade to InvestingPro to unlock the hottest news - Enjoy 50% off today

Mizuho TMT analyst Daniel O’Regan said: “In my view, the most important macro development in the past 24 hours is the rapid change in rate cut expectations: the market now expects a 10% chance of a rate hike in April, up from 6% yesterday and 0% on Wednesday. According to CME futures data, the probability of a rate cut is 0%—a stark contrast to the 2-3 cuts expected earlier this year.”

This shift occurred after the U.S. two-year Treasury yield surged significantly. Jeffrey Gundlach of DoubleLine Capital stated that the yield increased by 50 basis points in less than three weeks. Gundlach wrote on X: “The U.S. two-year Treasury yield has risen 50 basis points in less than three weeks. This now suggests the Fed may hike once.”

Rising energy prices driven by the Iran conflict have pushed up interest rates and heightened investor concerns about inflation. The Producer Price Index (PPI) released this week also exceeded market expectations, with higher oil prices not yet reflected in the data.

Federal Reserve Chair Jerome Powell discussed inflation concerns at a press conference in Washington on Wednesday. Powell said: “Recent inflation expectation indicators have increased over the past few weeks, which may reflect the sharp rise in oil prices caused by supply disruptions in the Middle East.”

He added: “Higher energy prices will push up overall inflation, but it is too early to assess the potential impact and duration on the economy.”

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.