Traders in the futures markets moved up their expectations for the first Federal Reserve interest rate hike to July from September, following a hotter than expected inflation report.

“It’s a very sharp move we’re seeing the back end of 2022,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

October’s consumer price index came in at a scorching 6.2% year-over-year, higher than the 5.9% expected.

Traders are now fully pricing in a first rate hike for September, but they are pricing in much higher odds that the Fed starts to raise rates sooner. The Fed has said it would complete tapering its bond buying program by the middle of the year, and then begin raising interest rates.

“The effective fed funds rate is currently at 8 basis points and the fed funds July contract is priced at 27 basis points,” said Boockvar. Each rate hike is assumed to be a quarter of a percentage points.

“That implies the odds are about 80% that they raise rates by July,” he said.

“Fed funds are pricing in more hikes sooner. I think it’s too much,” noted Michael Schumacher, Wells Fargo director rates.

Fed funds futures also show they now expect a second full hike by December, with the contract trading at 0.57%, noted Ben Jeffery, fixed income strategist at BMO.

Strategists are watching the move in the Treasury curve which is showing a narrowing between long end yields, like the 30-year and the shorter end, like the 5-year

“The flattening of the curve reflects more hawkish fed assumptions, also reflected in the fed funds futures market,” said Jeffery. He said the spread between the 5-year and 30-year is narrower, at 68 basis points, or 0.68 percentage points. That is the flattest since the early weeks of the pandemic in March, 2020.

A flattening yield curve can indicate that investors are worried about a weakening economy.