The rate cut party markets anticipated for 2024 is over. Fresh inflation data has traders pricing in something unthinkable months ago: the Federal Reserve might actually raise rates.
US headline CPI climbed to 3.8% year-over-year in April, a nearly three-year high. With March’s PCE reading showing headline inflation at 3.5% and core PCE at 3.2%, the picture is hard to ignore.
The pivot from pivot
Market predictions show a 44% chance of a Fed rate hike before July 2027. Traders see no cuts before that date either. Chicago Fed President Austan Goolsbee, typically a dovish voice, has acknowledged rate hikes are now on the table - a complete reversal from early 2024, when futures priced in as many as six cuts.
Oil, geopolitics, and inflation
Energy prices have surged due to geopolitical tensions involving Iran, creating supply-side pressure that central bankers dread.
Investor implications
Rate hikes would hit hardest where capital has flowed most aggressively: long-duration assets like high-growth tech stocks and crypto. Leveraged positions in crypto face especially higher carry costs. Watch for Fed language at the next FOMC meeting. If “hike” appears in official statements, risk asset repricing could accelerate quickly.