Just two days after the Fed made its biggest hawkish shift in recent years since it beefed up its QE on Wednesday, investors are rejecting the Fed's hawkish tendency to bluff this week, believing that the Fed will raise interest rates more next year than Fed officials recently expected.

Most Fed officials expect to raise interest rates three times in 2022 and 2023, next year and the year after, according to the bitmap updated after the Fed meeting on Wednesday. Officials forecast a median interest rate of 2.125% in 2024. This means that Fed policy makers generally expect the Fed to raise interest rates eight times from their current levels by the end of 2024.

However, investors are betting that interest rates will peak around 1.25% by the end of 2023, that is, a full year ahead of schedule, according to Friday's overnight index swaps. Even the most dovish fed officials on the dot map forecast interest rates of more than 1.9% in 2024, 67 basis points higher than the market expected.

In other words, the expectations of interest rate market traders are more hawkish than the Fed's forecasts, and the market's expectations of 2024 interest rates are well below the Fed's most dovish forecasts. As a result, the market predicts that the Fed will end the rate hike cycle ahead of its own forecast, that is, it will definitely raise interest rates more than three times next year and complete the rate hike cycle faster.

Ironically, the Fed is now moving closer to market expectations for next year, while traders are betting that this will lead to a shorter and smaller rate hike cycle, the media commented.

In fact, senior Fed officials announced on Friday that they would not wait until the middle of next year, but that they would raise interest rates next spring.

As mentioned in an earlier article on Wall Street, Federal Reserve Governor Chris Waller, who has a permanent vote at the FOMC meeting of the Monetary Policy Committee during his term of office, said it was guaranteed to raise interest rates "soon" after the bond purchases ended in March. Although "it depends on future data", there is an opportunity for the Fed to raise interest rates for the first time at its March meeting.

He personally predicted that "it may happen in March is a very likely outcome." Major disruptions such as Mr Omicron's delay in improving the labour market or the decline in unemployment will not make March a critical time to consider raising interest rates. "

Ian Lyngen, head of US interest rate strategy at BMO Capital Markets, pointed out in the report:

The Fed is right to assume that the next six months are unlikely to be significantly different from the past six months, and that the new year will be characterized by an improvement in the labour market and continued upward pressure on consumer prices. The extent to which the real economy will be hit by the withdrawal of easing is a big question. We expect the extent of the shock to continue to reinforce the rally in longer-term sectors of the US interest rate market. "