Castle Securities warns that the risk of a rate hike by the Federal Reserve in July is being underestimated, and the employment report has exceeded expectations.

Castle Securities stated that investors are underestimating the possibility of the Federal Reserve raising interest rates as early as this month, as Chairman Kevin Wash appears to be preparing to take a more proactive approach to combating inflation. The company's head of macro strategy, Frank Flight, continues to see the Federal Reserve raising rates twice this year - in September and December - as the base case. However, he noted that the market is currently giving only a 30% probability of a rate hike in July, which he believes is too low. Flight wrote in a report to clients that investors are still holding on to the belief that the Federal Reserve will only tighten policy when economic data overwhelmingly proves it necessary. But Flight believes that Wash is adopting what Castle Securities calls an "adaptive" framework, under which the central bank will act early to prevent inflation pressures from becoming entrenched.