Bond traders price in Fed rate hike by December as inflation lingers
What's next: Markets see little chance of a July move but increasingly favor a quarter-point hike in September or October.
Bond traders are betting the Federal Reserve will raise interest rates by December, even after June consumer prices posted their first monthly drop since 2020. Investors have largely ruled out a move this month, but still see high odds of a quarter-point increase as early as September or October. The shift reflects persistent inflation pressures, including higher oil prices after the US-Iran ceasefire collapsed and heavy artificial-intelligence spending that is still feeding the economy. Fed Chair Kevin Warsh, who took over two months ago, has kept the focus on pushing inflation back toward the central bank’s 2% target after five years above it. Treasury yields have already climbed sharply, suggesting much of the expected tightening is already priced into markets.