Investors rushed to price in more aggressive Federal Reserve rate hikes Monday as the US inflation shock continued to upend bets on peak price pressures, sending Treasury yields surging and strengthening the dollar.
With a 50 basis point hike seen as a given at the central bank’s policy decision Wednesday, market participants are awaiting its updated projections for the US economy, inflation and interest rates. Traders see 50-50 odds of the Fed raising rates by three-quarters of a percentage point in July, while Barclays Plc became the first major bank to predict such a move could even come this week.
Two-year Treasury yields climbed to a 15-year high of 3.19% and the 10-year equivalent added as much as 4 basis points to 3.20%. Data Friday showed that US May consumer prices exceeded even the highest economist estimate in a Bloomberg survey.