Markets now price over a 30% chance of a Fed rate increase by year-end following stronger-than-expected inflation figures.
Traders sharply revised Federal Reserve rate expectations after a hotter-than-anticipated inflation report, eliminating near-term rate cut bets. The CME Group’s FedWatch tool shows markets now assign a 33% probability of a rate hike by December, up from negligible odds earlier this month.
Prior to the report, markets had priced in multiple rate cuts through 2027. The shift follows a consumer price index rise driven largely by surging energy costs, with headline inflation reaching its highest level in nearly three years. Inflation expectations, both survey- and market-based, have also climbed since late February.
Moody’s Analytics Chief Economist Mark Zandi suggested the Fed may remain on hold unless inflation expectations break higher. Energy prices, boosted by geopolitical tensions, accounted for over 40% of the recent CPI increase.