Don't completely count out June rate hike
On Monday, Wall Street wasn’t much worried about the Federal Reserve raising interest rates at its June meeting. Futures markets placed chances of a hike next month at roughly 4%.
But that was before data released Tuesday showed inflation at the consumer level ticking up 0.4%, the biggest monthly gain in the consumer price index since February 2013 -- or more than three years ago. That got the attention of Wall Street, which now thinks the Fed has more hard data to make a case for hiking rates in June. Adding to the rate woes were comments from two Fed members Tuesday that suggested there was still a chance for two and maybe even three rate increases this year.
The latest rate angst makes the release of the minutes of the Janet Yellen-led Fed’s April meeting on Wednesday even more important. Futures markets are now pricing in 15% odds of a June hike, still low but up sharply from Monday. The Dow fell 181 points to 17,530 Tuesday on rate-hike fears.
Investors will scrutinize the Fed minutes for any clues of a rate hike coming sooner rather than later. They’ll also look for signs of rising dissension from Fed hawks, or members pushing for a rate hike sooner rather than later.
“The market has very little priced in relative to Fed commentary, and there is a mismatch,” says Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management. “The market is basically saying, ‘we don’t belive you Fed.’ The risk is that the market gets surprised.”