Société Générale Warns of Aggressive Federal Reserve Rate Pricing

Strategist Rajappa of Société Générale warns that financial markets are aggressively pricing in three and a half to four Federal Reserve interest rate hikes over the next year. He suggests that the market is pushing limits to see what can be priced in before something breaks, though he notes that equity markets remain resilient and financial conditions are currently relatively easy.

Rajappa indicates that the Federal Reserve may not actually follow through with the number of hikes the market has already priced in. He also anticipates increased volatility in long-end bond yields, which he attributes to a building term premium and political unrest tied to upcoming elections in the United States, France, Germany, and Brazil.