Are Investors Too Compacent About Fed Rate Increase?

Eran Peleg, CIO March 1, 2017

Economic activity and inflation data have been on the rise recently. Not just in the US, but more globally.

On several occasions recently, Fed officials have made it clear that they are looking to increase rates.

However, investors, who are probably looking mainly in the rear-view mirror, do not believe them. Fed Funds futures (market participants' future expectations) currently reflect a shallower path of rate rises than Fed officials are predicting. In the short-term, for example, interest-rate markets are reflecting only a 40% probability of a rate hike in March. I do not know if they will raise rates in March – but given recent data and declared Fed intentions, 40% seems too low.

Are investors too complacent?