Traders are boosting bets for higher borrowing costs, with money markets now expecting almost five interest-rate increases from the Federal Reserve this year and another four from the Bank of England.

Investors are also speculating whether Fed Chair Jerome Powell will front-load hikes by potentially making a rare 50-basis-point move in March, after he struck a hawkish tone at this week’s meeting. The wagers rippled through markets, with short-dated bonds slumping and the dollar rallying. CME open interest data following Wednesday’s selloff showed a build-up of new short positions across the Treasuries curve as yields surged higher.

The pace of rate hikes being indicated by front-end markets, which at one point Thursday showed five quarter-point increases for 2022 fully priced in, eased back slightly in early New York trading, although traders aren’t far from that level. They are also pricing around 30 basis points into the March meeting, suggesting some bets on a super-sized half-point hike then.

U.S. gross domestic product growth figures for the last quarter of 2021 came in stronger than expected, at an annualized pace of 6.9%, although there was little reaction in rates pricing given the market has already taken on a hawkish tilt in the wake of the Fed meeting.

Shortly after Wednesday’s Fed policy announcement, Nomura Holdings Inc. changed its forecast for Federal Reserve interest-rate hikes, with the bank now expecting a 50 basis-point increase in March. Money markets are currently pricing a half point of tightening by the May policy meeting. On Thursday, the three-month dollar Libor rate fixed over 2 basis points higher, largest rise since November 2020.

“People are getting serious about a 50-basis-point hike,” said Rishi Mishra, an analyst at Futures First.

The tone of Powell’s press conference leaves no doubt that price stability takes precedence over other policy goals, meaning there’s even an upside risk of six hikes, Bloomberg Intelligence’s Anna Wong wrote in a note.

“My biggest disagreement with market pricing though is in the context of a terminal rate in the cycle, where the market discounts rates topping at 2%,” said Mark Dowding, CIO of BlueBay Asset Management. “I think this is 100 basis points too low and see rates getting to 3% in 2024.”

The on-off bets on faster policy tightening in recent months have spurred greater volatility across markets. U.K. bonds took the biggest hit Thursday, with two-year yields climbing to the highest since 2011. The Treasury curve flattened as two-year yields rose three basis points while their 10-year peers fell by just as much.

The rate-hike fever spread in Europe, with traders betting on a 25-basis-point move by the Bank of England next week to 0.5%. Money markets see the bank rate at 1% by June and then climbing to almost 1.5% by December. That wasn’t enough to prop up the pound against a resurgent dollar.

The European Central Bank, which has consistently sounded more dovish than its major peers, is now expected to hike its deposit rate by 10 basis points to minus 0.4% by September, from October previously. Policymakers led by Christine Lagarde next meet on Feb. 3.

“It will be really interesting to see if Lagarde will push back on 2022 pricing — the question is if she can convince markets,” said Piet Christiansen, chief strategist at Danske Bank A/S. “I think she will still say that uncertainty is high and it is highly unlikely to raise rates this year. In this market, it’s not time for high conviction calls on central bank pricing.”

James Hirai and Greg Ritchie report for Bloomberg News.

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