(Bloomberg) — With the Federal Reserve threatening to hike its interest rate by nearly 33% in just three years, the U.S. bonds market is at the tip of pricing.

For the first time this year, traders are pricing in a near-equal chance that Fed policy makers in June will raise their benchmark rate by 75 basis points, following the half-point move that’s expected at their meeting next week. The Fed hasn’t done a 75-basis-point increase since the aggressive tightening cycle of 1994 that was followed by modest rate cuts in 1995 amid a steady economic expansion.  

In June, swap contracts included 111 basis point tightening. That’s 11 basis points above the expected percentage points of increases in June and May. This week, prices were set at 106 basis points. 

The release of data showing an unprecedented rise in labor costs for the first quarter spurred a rush to sell short-dated interest rates contracts as well as the two-year Treasury note, which is policy sensitive. 

Elevated inflation pressure suggesting the central bank is well behind the curve has prompted traders to expect four half-percentage hikes through the central bank’s September meeting. Traders have also pushed up expectations that the central bank will raise policy rates to a peak of 3.30% by the middle of 2023, beyond the Fed’s own forecast of 2.8% for the current cycle.

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