Fed rate-cut bets evaporate as traders price in December hike

The market for Federal Reserve interest-rate futures has undergone a violent reversal, with traders now pricing in a rate hike as early as December.

This marks the first time in the current monetary cycle that the probability of a tightening move has entered the pricing models, signaling a complete collapse of the rate-cut consensus that dominated the market earlier this year.

The shift in the Fed funds futures curve reflects a sharp repricing driven by a series of unexpectedly high inflation readings.

Investors have decisively moved away from anticipating any near-term easing, replacing the previous dovish outlook with a hawkish stance that anticipates the central bank raising borrowing costs to combat persistent price pressures.

This aggressive repricing underscores the fragility of the current macroeconomic backdrop.

With inflation proving stickier than anticipated, the Federal Reserve faces a constrained policy path.