The Markets Could Be In For A Shocker Next Week If The Fed Pulls A Surprise Hike

The odds for a May rate hike are actually significant, and definitely not priced into the market. Here’s the odds of a May FOMC (no presser) rate hike…

from Zero Hedge

While the long-term economic outlook is increasingly murky, today’s data which saw a beat in GDP and the highest employment cost index since 2008, has convinced traders of one thing: a June rate hike is coming.

As seen in the chart below, the probability of a rate hike in June is now 93.3%, the highest in the series, and is why the 2Y rose as high as 2.495%, flattening the curve even more.

And while nobody is talking about it, the market now believes that there is a non-trivial chance, or 34.2%, of a 25bps rate hike next week.

However, to answer what all this means for the broader economy, and the long-term inflationary outlook, just keep your eyes on the yield curve: the flatter it gets, the more likely a recession is imminent: the only question is when.