Traders now assign a 51% chance of a December Fed rate increase after higher-than-expected inflation data.
Traders in fed funds futures markets are now pricing in a Federal Reserve interest rate hike as the next policy move, marking a shift in expectations following a week of elevated inflation readings. The CME Group’s FedWatch tool shows a nearly 51% probability of a December hike, rising to 71% by March 2027.
Recent data revealed multi-year highs in both consumer and wholesale inflation, alongside surging import and export prices. This follows a period of aggressive Fed tightening in 2022, which included four consecutive 75-basis-point hikes. At the last FOMC meeting, three members dissented from holding rates steady, opposing language suggesting the next move would be a cut.
Economists in the Survey of Professional Forecasters now expect second-quarter inflation to peak at 6%, a sharp upward revision from prior estimates. The shift in market sentiment contrasts with incoming Fed Chair Kevin Warsh’s view that rate cuts remain possible in the current environment.