Markets Underestimating Speed of Fed Rate Rises

Low volatility across financial markets may signal investors are underestimating how quickly the Federal Reserve will raise interest rates, according to researchers at the San Francisco Fed.

“Surveys, market expectations, and model estimates show that the public seems to expect a more accommodative policy than Federal Open Market Committee participants,” Jens Christensen, a senior economist, and Simon Kwan, a vice president of financial research, said in a report today. Data also suggest that the public is “less uncertain about their projections.”

Fed officials in their June economic forecasts predicted their target interest rate will be 1.13 percent at the end of 2015 and 2.5 percent a year later. They are set to release updated projections Sept. 17. Federal funds rate futures are pricing in the first interest-rate increase in October 2015.


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