National Economic Council Director Kevin Hassett stated that markets are "terribly wrong" to price in an interest rate hike from the Federal Reserve this year. He emphasized this view on "Bloomberg Open Interest" on June 5th, 2026, pointing to strong US job growth in May.
Hassett's stance is further supported by his comments on July 1st, 2026, where he asserted that a rate increase would be a "mistake" for the Fed. He projects US Gross Domestic Product (GDP) growth around 4% in the second half of the year, suggesting that current economic conditions do not warrant tightening monetary policy.
Despite Hassett's conviction, there are contrasting views within the Federal Reserve. Minutes from a May 20th, 2026, meeting revealed that a majority of officials warned they might need to consider raising interest rates if inflation persisted above their 2% target. "Many" officials also advocated for dropping the easing bias, hinting that the next move could be an increase. This division within the Fed has led traders to hedge for both potential rate cuts next year and rate hikes in the coming months, highlighting significant market uncertainty. For instance, wagers have emerged targeting two quarter-point increases by September 2027.
Prior to these developments, on March 19th, 2026, bond traders had ceased to price in any possibility of a Fed rate cut for the year, largely due to concerns about global inflation stoked by the Bank of England. This sentiment caused yields on two-year US Treasuries to rise by 11 basis points to 3.89%. The current situation, however, reflects a more complex market dynamic, with participants preparing for a wider range of outcomes, including a hawkish turn by some Fed members, even as others like Hassett argue against it.
