Markets now price a 26% chance of a Fed rate hike after April inflation hit a three-year high of 3.8%.
The Federal Reserve’s new chair, Kevin Warsh, takes over as inflation surges to 3.8% in April, its highest level in three years. The jump, driven by an 18% year-over-year rise in energy costs amid the Iran conflict, has upended earlier expectations for rate cuts in 2026.
Just months ago, traders anticipated two or three Fed rate reductions by year-end. Now, futures markets assign a 26% probability to a hike as the next move, with a 74% chance of no change through December. Bond markets reflect a hawkish pivot, signaling tighter policy ahead.
Sectors resilient to rising rates and inflation, including energy and financials, are poised to outperform as the Fed’s stance shifts.