US Treasury markets are pricing in a Federal Reserve rate hike by early autumn, a move that stands in stark contrast to the central bank's probable policy path.
The shift reflects growing uncertainty among traders regarding the direction of monetary policy under new Fed Chair Kevin Warsh, whose hawkish rhetoric has unsettled bond markets.
The repricing has significantly flattened the yield curve, as short-term rates rise faster than long-term yields.
Fed funds futures now indicate at least one rate increase before the end of the year, marking a dramatic departure from previous expectations.
This divergence between market pricing and the Fed's likely actions highlights the difficulty Wall Street faces in forecasting policy under the new leadership.
The market's reaction underscores the tension between the Fed's communication and its actual policy decisions.