Investors Are Underestimating Future Interest Rate Hikes?

Investors have tended to underestimate the scale of future rate hikes from the Federal Reserve in the past, and it is highly likely that they are making the same mistake again claims Capital Economics.

According to the research outfit, in the past three tightening cycles the market has significantly underestimated the rate of change in the fed funds rate with the Fed increasing rates at a rate of almost double what the market was expecting during the 1994 to 1995 and 1999 to 2000 tightening cycles. In the last tightening cycle, 2004 to 2005 the Fed tightened only slightly faster than the market expected, but still caught traders and analysts off guard.

Are investors underestimating the scale of future interest rate hikes?

The team...