Fed’s Dudley Says Rate Hike Could Come Sooner Than People Expect

Image of business magazine with coinsIn a Fox Business interview today, Federal Reserve Bank of New York president Bill Dudley said that bond markets are getting overdone, and that investors are the “markets were underpricing the odds of a second rise in official interest rates.”

“We’re edging closer toward the point in time where I think it will be appropriate to raise interest rates further,” said Dudley on Mornings with Maria. When pressed about potential asset bubbles as a result of persistent low rates, he remarked that bonds look “a little stretched.” Recently, investor appetite for bonds versus stocks hit an all-time high, acorrding the analysis by J.P. Morgan Chase.

Most investors and analysts assume the Fed will simply sit on its hands for the foreseeable future, leaving rates unchanged. But BlackRock believes we’ll see one rate hike before the end of the year, as does a prominent Wall Street Journal pundit.

So far today, the bond market is responding to Dudley’s comments with a yawn. The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT) fell slightly to $138.51 per share in Tuesday morning trading.

The TLT has gained nearly 15% since the start of 2016, as interest rates on U.S. government bonds have fallen.

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