Traders on Wall Street have now fully priced in quarter-point interest rate increases at each of the U.S. Federal Reserve’s next two policy meetings.
U.S. markets have also priced in a 70% chance of a third interest rate increase in June of this year.
Expectations are that the terminal rate, which is the point at which interest rates peak, will be at 5.31% by this July.
The revised expectations on Wall Street come as Treasury yields hit their highest levels of the year, with the two-year note rising to 4.71%, which is close to a multiyear high.
Market expectations for monetary policy have changed along with economic reports that have showed a tight U.S. labour market and persistently high inflation.
Economists at Bank of America (BAC) and Goldman Sachs (GS) have revised their Fed policy forecasts to include a June rate increase in addition to raises in March and May of this year.
The Fed has lifted its benchmark interest rate eight times since March 2022, most recently to a range of 4.50% to 4.75% on February 1.
The American central bank has forecast a peak inflation rate of 5.10% and no rate cuts this year.