Financial markets are beginning to price in a more aggressive Federal Reserve this year.
After the government reported Friday morning strong retail sales from the holiday season and higher-than-expected core inflation, Fed rate hike probabilities shot up and moved into earlier months.
Markets now fully expect two rate hikes this year and have nearly priced in a third. And there is some initial flirtation with a fourth rate hike.
The probability of a rate hike in March surged to 84 percent from 78 percent a week ago, according to Thomson Reuters. More significantly, the second rate hike is now priced with a 55 percent chance to take place in June. Previously, it had been priced in for August, and for September not long before that.
Markets put a 45 percent probability on the third rate for December, up from 38 percent a week ago. There's even a 13 percent chance of a fourth rate hike being priced in.
The moves came after government data showed retail sales grew an expected 0.4 percent in December but November was revised up a tenth to 0.9 percent. It was the best combined gain for the critical retail months of November and December in seven years. Core retail sales, which feed directly into economists' GDP calculations, were revised up by four tenths to 1.4 percent in November, the best monthly gain since 2006, suggesting that fourth-quarter growth estimates will be revised higher.