Institution: Market pricing of the Fed and ECB rate hike paths may be too aggressive.

Indosuez Wealth Management strategists Lucas Merrick and Alexandre Bell argued that market pricing for Federal Reserve and European Central Bank rate paths is more hawkish than their base case, which assumes steady growth and a gradual inflation normalization that would limit further tightening. Money markets currently price about 1.5 Fed hikes and two ECB hikes over the next 12 months. The firm cautioned that accumulating enough benign underlying inflation and growth data to validate its scenario could take time, keeping bond markets volatile in the interim. The call matters because rate expectations drive bond yields and cross-asset positioning. Next, investors will watch incoming inflation and growth prints for signs of whether the market’s hawkish pricing unwinds.