- Investor expectations for a Fed rate hike have risen sharply, with 40% of fund managers now anticipating at least one hike in the next 12 months, up from 16% in May.
- Rate-cut expectations plunged to 28% from 50% last month, according to Bank of America’s June fund manager survey.
- Prediction markets show growing odds of a Fed hike before 2027, reflecting persistent inflation concerns.
A Shift in Sentiment
Just a month ago, markets were pricing in a series of rate cuts. Now, the tide has turned. The Bank of America June fund manager survey reveals a dramatic reversal: 40% of respondents expect at least one rate hike over the next year, compared with just 16% in May. Meanwhile, only 28% anticipate cuts, down from 50% last month.
“The pivot in expectations is striking,” said one analyst familiar with the survey. “Investors are recalibrating for a more hawkish Fed.”
The shift is also visible in prediction markets. On Kalshi, contracts betting on a Fed rate hike before 2027 have gained traction, implying growing odds that the central bank will tighten again.
Data Dependency at Play
The Federal Reserve’s next moves hinge on incoming inflation and employment data. Sticky CPI prints and a tight labor market have fueled speculation that rates may need to rise further. “The path is data-dependent,” a trader said. “If inflation doesn’t cool, a hike is very much on the table.”
Global spillovers are also in focus. A higher peak in U.S. rates could strengthen the dollar, strain emerging markets, and tighten global financial conditions.
What’s Next?
Short-term volatility is expected as markets react to each new data release. A decision on rates is likely months away, but the shift in expectations underscores a broader uncertainty. “We’re in a wait-and-see mode,” said a strategist. “But the risk of another hike is real.”
For now, the Fed’s own guidance remains cautious. Officials have stressed a data-dependent approach, leaving the door open to either a hike or a prolonged pause.