Markets raise odds for Federal Reserve rate hike after inflation report

The rate cut party that markets spent all of 2024 anticipating has officially been uninvited. Fresh inflation data has pushed traders to price in something that seemed unthinkable just months ago: the Federal Reserve might actually raise interest rates.

US headline CPI climbed to 3.8% year-over-year in April, hitting a nearly three-year high. Paired with March’s PCE reading, the Fed’s preferred inflation gauge, showing headline inflation at 3.5% and core PCE at 3.2%, the picture becomes harder to ignore.

The pivot from pivot

Market predictions currently indicate a 44% chance of a Fed rate hike before July 2027. Perhaps more telling, traders see no cuts happening before that date either.

Chicago Fed President Austan Goolsbee has acknowledged that rate hikes are now on the table as a policy option. That’s notable because Goolsbee has generally been considered one of the more dovish voices on the Federal Open Market Committee.

The shift represents a complete reversal from where markets stood entering 2024, when futures were pricing in as many as six rate cuts.

Oil, geopolitics, and the inflation feedback loop

The inflation resurgence isn’t happening in a vacuum. Energy prices have surged due to geopolitical tensions stemming from conflict involving Iran, sending oil costs higher and creating the kind of supply-side pressure that central bankers hate most.

What this means for investors

Here’s the thing about rate hikes in 2025: they would hit hardest in the exact places where capital has been flowing most aggressively. Long-duration assets, meaning anything whose value depends heavily on future cash flows, get repriced downward when rates rise. That category includes high-growth tech stocks and, critically for this audience, crypto.

The 44% probability of a hike before mid-2027 isn’t a certainty, but it’s high enough to matter. Positioning that assumed rate cuts were a foregone conclusion needs to be reconsidered. This is particularly relevant for leveraged positions in crypto markets, where the cost of carrying trades rises in lockstep with interest rates.

Watch for how Fed officials frame their language at the next FOMC meeting. If the word “hike” starts appearing in official statements rather than just interview remarks, the repricing in risk assets could accelerate quickly.