Markets begin eyeing Fed rate hike around turn of year
Recent inflation data exceeding expectations has increased market bets on a potential Federal Reserve interest rate hike by late 2025 or early 2026. The likelihood of a rate increase by January is now around 60%, complicating the transition for incoming Fed Chair Kevin Warsh. Despite Warsh's views on AI-driven productivity tempering inflation, he inherits a policy environment leaning toward tighter monetary conditions.
- ▪Inflation data at the consumer, wholesale, and import levels all exceeded already-high forecasts this week.
- ▪The probability of a 25 basis point rate hike by January's FOMC meeting rose to around 60%, with a December hike seen as a 50-50 chance.
- ▪Three Fed officials dissented against the April policy statement due to its continued emphasis on potential rate cuts.
- ▪The inflationary pressures observed are the highest since the post-pandemic surge and are broadening beyond energy prices.
- ▪Kevin Warsh, recently confirmed by the Senate, will succeed Jerome Powell as Fed Chair amid shifting market expectations and political pressure for lower rates.
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| Publication time | Sat, 16 May 2026 06:42:04 GMT |
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Federal Reserve Board building in Washington, D.C., Nov. 14, 2025. Reuters-YonhapAfter a run of hotter-than-expected inflation data this week, investors ramped up bets Friday that the U.S. Federal Reserve will shift into interest-rate hiking mode perhaps before the year is out, presenting a potential policy dilemma out of the starting gate for incoming central bank leader Kevin Warsh.The probability that the Fed's benchmark interest rate would be 25 basis points higher by January's Federal Open Market Committee meeting was up to around 60% and a hike as early as December was seen as a coin toss, according to CME's FedWatch.The Fed under outgoing Chair Jerome Powell has held its policy rate in the 3.50% to 3.75% range since December, and despite inflation that has persistently run above…
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