It looks like the bond market is betting a Federal Reserve rate increase could be on the way — but Fed members and economists mostly don\u2019t seem to think so. What\u2019s going on?<\/p>\n
Fed \u2060funds futures – \u200bthe market\u2019s favorite tool for predicting rate moves – put roughly 50 per cent odds on the U.S. central bank raising rates by December, following a bond-market rout that sent the 30-year Treasury yield above 5 per cent, the benchmark 10-year yield to a 15-month high and the two-year yield to the highest since March 2025.<\/p>\n
But many economists believe the fed-funds market \u200bmay be overreacting to the surge in oil prices and the increase \u200cin headline inflation, at a time when Fed members have refrained from suggesting rate hikes are in the offing soon. Some analysts caution that the market\u2019s signals may be less reliable than they appear because there is less trading in contracts that expire months down the road.<\/p>\n
\u201cThere\u2019s really low trading volumes in the contracts for the middle of next year,\u201d said Will Compernolle, macro strategist at FHN \u200cFinancial. \u201cI consider it \u200ba pretty low conviction signal from the \u200cmarket. The market might just be really hedging for the risk that a hike does eventually come.\u201d<\/p>\n
The contracts \u200bshow the odds of a rate increase rising through the first half \u2060of next year, reaching around 73 per cent by July.<\/p>\n
But volumes vary widely and tend to decline over \u2060time. While the May 2026 contract has traded around 646,000 times this month, for example, the January 2027 contract has traded just a third as \u200boften and the July contract next year has changed hands only 6,400 times.<\/p>\n
Ryan Swift, chief U.S. bond strategist at BCA Research, thinks the market is moving faster than the data justifies. \u201cThe financial markets move very quickly to incorporate new information faster than the actual data,\u201d he said. \u201cSometimes the market\u2019s picking up something right, and economists will eventually follow. But often, it\u2019s just overreacting.\u201d<\/p>\n
The Fed held interest rates \u2060steady in a range of 3.50 per cent to 3.75 per cent at its April meeting, with just one dissent in favor of a quarter-point rate cut. Notably, three members of the monetary policy committee objected to language in the statement suggesting the Fed would eventually resume cutting rates.<\/p>\n
The Fed\u2019s dual mandate of full employment and low inflation puts the central bank in a bind. Inflation remains well above the Fed\u2019s 2 per cent target and is moving in the wrong direction, yet there \u2060has been no serious deterioration in the labor market that would give \u200bpolicymakers cover to lower rates.<\/p>\n
\u201cThe Fed can\u2019t really point to that like they could last year when we got a \u2060couple of cuts,\u201d said John Luke Tyner, portfolio manager at Aptus Capital Advisors.<\/p>\n
Some of the recent bond-market volatility is also likely tied to traders testing how \u200cnew Federal Reserve Chair Kevin Warsh will respond to rising inflation, which undercuts Trump\u2019s desire for lower rates, said Lou Brien, \u200bmarket strategist at DRW Trading.<\/p>\n
\u201cEspecially if the crude oil stays high, they\u2019re going to want to see that Warsh is his own man rather than the president\u2019s man at the Fed,\u201d Brien said.<\/p>\n
Warsh served on the Fed\u2019s board from 2006 to 2011 and developed a reputation as an inflation hawk during that time. \u200bHe has said there is room for the central bank to lower interest rates but has not commented publicly since April\u2019s data was released.<\/p>\n","protected":false},"excerpt":{"rendered":"It looks like the bond market is betting a Federal Reserve rate increase could be on the way…\n","protected":false},"author":2,"featured_media":680371,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-680370","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/680370","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=680370"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/680370\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/680371"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=680370"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=680370"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=680370"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}