A rates-product executive at Goldman Sachs Group Inc. said traders are positioned correctly for the Federal Reserve to raise interest rates to combat a surge in war-driven inflation.
Given the mix of higher prices, a resilient US economy and a rush of corporate spending on artificial intelligence, bond traders are right to bet on higher borrowing costs, said Muhammad Qubbaj, co-head of US interest rate products at Goldman.
“Things are looking resilient in the economy out there,” he said on a podcast published by the bank on Friday. “So we feel that the market is fairly pricing what the FOMC path should be here on a probability-adjusted basis.”
Bond traders see a roughly 75% chance that the Fed, led by Chairman Kevin Warsh, will raise rates by the end of this year. They’ve fully priced in a move by March 2027.
While the Fed is widely expected to keep their benchmark on hold next week, Qubbaj sees the June meeting as a litmus test for Warsh.
“Will he basically lay a stake and come in fighting? Or is he going to be conciliatory, consensus building, and calming? Definitely think it should be the latter,” he said.
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