Half of Fed officials want to raise interest rates! Traders are fully pricing in a rate hike before October, expecting two hikes before the first quarter of next year.

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Federal Reserve officials have signaled that interest rate hikes may occur in the coming months, prompting traders to fully price in expectations of higher borrowing costs before October, and short-term U.S. Treasury yields jumped sharply as a result.

In the early morning hours of Thursday Beijing time, the Federal Reserve announced it would keep interest rates unchanged, but the simultaneously released quarterly dot plot showed a clear inclination among officials toward rate hikes this year.

This was Fed Chair Walsh's first rate decision during his tenure. The currency market currently indicates that an interest rate hike before September is considered highly probable, and a hike before October has been fully priced in. The dollar surged 0.87%.

The yield on the U.S. two-year Treasury note, which is highly sensitive to the Fed's recent policy moves, rose by 14 basis points after the announcement, climbing to 4.20%. This market reaction reflects a significant repricing of investors’ expectations for the Fed's policy path.

Clear Divergence in Dot Plot, Half of Officials Favor Rate Hike

The Fed’s latest quarterly forecast shows that among 18 officials, 9 expect at least one rate hike this year, 6 expect at least two hikes, and another 9 expect rates to remain unchanged or to be cut.

This result indicates a rather sharp internal split within the Fed on policy direction—exactly half of the committee members lean toward starting rate hikes within this year.

Bob Michele, Chief Investment Officer and Global Head of Fixed Income at J.P. Morgan Asset Management, stated:

Half of the committee members anticipate rate hikes this year. This is a real warning signal for the market, and I believe they are preparing to raise rates.

Currency market pricing shows that expectations for a rate hike have shifted from a previously vague timeframe to a clear window between September and October, with two rate hikes expected by the first quarter of 2027.

This shift indicates that the dot plot and official statements have had a substantive impact on market expectations. The uncertainty over the short-term rate path has decreased, but the direction is now more clearly tilted upward.

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