Wall Street Stops Pricing in Cuts. It's Pricing in Hikes.
After a hot inflation print, futures markets now imply a 37% probability of a Federal Reserve rate increase before year end. The pivot from 'when do they cut' to 'will they hike' has happened in weeks, not months.
Traders moved decisively away from rate-cut expectations on Tuesday after the April CPI print accelerated to 3.8%. By midday, fed-funds futures showed roughly a 37% implied probability of a hike before December — a positioning unimaginable in early spring.
The mechanical drivers are familiar: gasoline prices climbing on the Iran conflict, services inflation reaccelerating, wage growth no longer falling. The political driver is harder to read: the administration has signalled it wants lower rates, the Fed has signalled it will set policy on data.
Equity markets have absorbed the shift with surprising calm — for now. Credit spreads tell a more cautious story.
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