The Federal Reserve confirmed investor suspicions in December that multiple interest rate hikes are likely coming in 2022. The bond market is now pricing in the potential for the first rate hike to come sooner than many investors may realize.
Probability Rising
According to CME Group, the bond market is now pricing in a 56.5 percent chance the Fed will raise rates at its March 2022 meeting. While a 56.5 percent probability is far from certain, the probability of a March rate hike has been rising quickly in recent weeks, up from just 18.8 percent a month ago.In December, the Fed said it now anticipates three rate hikes by the end of 2022, which would potentially raise the target Fed funds rate from its current target range of between 0 percent and 0.25 percent to a new target range of between 0.75 percent and 1 percent. The bond market is now pricing in a 33.9 percent chance the year-end target range will be between 1 percent and 1.25 percent or higher.
