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Despite hardening expectations that the US Federal Reserve will raise rates this year, there remains a big divergence between the central bank and the markets over when policy will be tightened. This suggests that some market participants will be taken by surprise when the decision to increase rates is finally made, prompting a potential sell-off in bonds that could unsettle the equity and foreign exchange markets too.According to the Fed's so-called dot plot chart, last produced in March, an overwhelming majority of the central bank's open market committee, who will make the decision on when to tighten policy, think rates should be at least 0.5 per cent by the end of the year. Rates are currently in a corridor between zero and 0.25 per cent.In contrast, the market thinks rates will be 0.35 per cent by the end of the year, according to Fed fund futures, with rates only reaching 0.5 per cent by March 2016 .
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