US April CPI Report Sparks Fresh Fears of Fed Rate Hikes in 2026

• Markets now price in growing odds of Fed rate hikes as April CPI data approaches.
• Rising oil and gasoline prices continue adding pressure to U.S. inflation expectations.
• Softer wage and shelter inflation may help limit further Fed tightening concerns.

The upcoming release of the U.S. April Consumer Price Index (CPI) report has raised attention on the Federal Reserve’s next policy move, as financial markets continue to price in a prolonged period of high interest rates.

Current expectations from major investment banks indicate that the Fed is unlikely to begin cutting rates before 2027, while market participants have also started assigning higher probabilities to possible rate hikes later this year. The inflation report is expected to provide further clarity on whether price pressures tied to energy costs and core inflation trends could change the central bank’s policy direction.

According to CME FedWatch data, markets currently assign a 97.7% probability that the Federal Reserve will leave interest rates unchanged in June and a 94.6% probability of no change in July. The probability that rates will remain unchanged in September stands at 89.2%. However, traders are also pricing in a 5.7% chance of a 25-basis-point rate increase in September, rising to 14% in October and 23.7% by December.

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Oil Prices and Energy Inflation Remain Key Focus

Energy prices remain key to the April inflation outlook after Brent crude traded within the $105 to $110 range throughout the month. Higher oil prices also pushed average U.S. gasoline prices above $4.50 per gallon by May 8, marking the highest levels since July 2022.

The increase in fuel prices is expected to contribute to headline inflation growth in April. At the same time, analysts are assessing whether high energy costs are beginning to weaken consumer demand across other sectors of the economy.

First-quarter 2026 U.S. GDP data showed that household spending on accommodation and food services declined quarter over quarter for a fourth consecutive quarter and turned negative for a second straight quarter.

Attention has also shifted toward shelter inflation and wage-related inflation after softer readings emerged from recent labor market data. Analysts are monitoring whether reducing pressure in those areas could reduce the persistence of super-core inflation.

Recent remarks from Federal Reserve officials have also strengthened the market focus on inflation data. Chicago Fed President Austan Goolsbee stated that all interest-rate options remain under consideration, including both hikes and cuts. Meanwhile, journalist Nick Timiraos noted that future policy discussions may center on moving rates toward a “neutral” position depending on inflation developments.

Related: Fed Shifts Attention to Inflation as April Hiring Eases Rate Cut Pressure