Markets still under-estimating pace of future rate hikes

Markets are coming around to the idea that the Fed will raise rates for a second time either next month or in July, but still appear to be unusually sanguine about the prospects of additional rate hikes beyond then. We agree that the Fed will probably only raise rates twice this year now, but still think that rising inflation will force a more aggressive tightening next year, with the fed funds target range climbing to between 2.25% and 2.50% by end-2017.