After a warmer than anticipated inflation report, futures traders raised their expectations of the Federal Reserve’s first interest rate increase to July.

Peter Boockvar is chief investment officer of Bleakley Advisory Group.

October’s consumer price indexThe heat index was 6.2%, which is higher than the expected 5.9%.

Although traders are fully pricing in September’s first rate increase, they also expect the Fed to begin raising rates earlier. According to the Fed, it will end its bond-buying program in the middle of this year and raise interest rates thereafter.

Boockvar said that “the effective fed fund rate is at 8 basis point and the fed moneys July contract is priced as 27 basis points.” The rate increases are assumed to each be one-quarter of a percentage point.

He stated that “that implies they have about 80% chance of raising rates before July.”

Fed funds have been pricing more increases in the past. Michael Schumacher, director rate at Wells Fargo, stated that he thinks it is too high.

Fed funds futures indicate that Fed Funds expect a second hike in December. Contract trading is at 0.57%.

The Treasury curve is showing an increase in yields at the long and shorter ends, such as the 30-year, according to strategists.

Jeffery stated that the flattening curve is indicative of more hawkish Fed assumptions. This can also be seen in the fed funds futures markets. Jeffery stated that the spread between the 30-year and 5-year rates is smaller at 68 basis point, which equals 0.68 percent. This is the lowest level since March 2020, when the pandemic began.

Flattening yield curves can signify that investors are concerned about the economy’s decline.