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Markets begin eyeing a Fed rate hike around the turn of the year

BY Reuters | ECONOMIC | 09:08 AM EDT

May 15 (Reuters) - Interest rate futures prices fell sharply on Friday, reflecting a growing conviction among bond market investors that stiff inflation will push the U.S. Federal Reserve to raise interest rates late this year or in early 2027.

The probability that the Fed's benchmark interest rate would be 25 basis points higher by January's Federal Open Market Committee meeting were up to around 60% and a hike as early as December was seen as a coin toss, according to CME's FedWatch. (Reporting By Dan Burns)

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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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