Rates markets crossed two significant thresholds this week. One is that traders for the first time see the Federal Reserve raising its target interest rate by a half-percentage point in each of the next three meetings, in May, June and July, which would mark the biggest such increases since 2000. The other is that, for a brief moment, yields on benchmark Treasury Inflation-Protected Securities climbed back above zero.
The fact that both moves came soon after Federal Reserve Bank of St. Louis President James Bullard said he wouldn’t rule out the prospect of a 75-basis-point rate hike next month shouldn’t be lost on markets.
This is much more than an outlier call by a known hawk. Bullard has succeeded in floating trial balloons that then turn into commonly accepted wisdom. Not long after Bullard ’s comments, a succession of Fed speakers came out in favor of at least one or more half-percentage-point hikes, and on Thursday Chair Jerome Powell also put his weight behind an aggressive pace of tightening, saying that "50 basis points will be on the table for the May meeting."
