Construction of the Marriner S. Eccles Federal Reserve Building in Washington, DC, USA, on Monday, December 15, 2025.
To Drago | Bloomberg | fake images
For the first time in the current cycle, markets now think the Federal Reserve’s next move will be an interest rate hike.
After a week of surprisingly high inflation readings, traders in the federal funds futures market are pricing in an increase as early as December, with much greater certainty through early 2027, according to the CME Group’s FedWatch tool.
An increase in December has a probability of almost 51%, while a increase in January has a probability of about 60% and in March it has a probability greater than 71%, according to the measure, which uses prices of 30-day federal funds futures contracts to measure the probabilities.
The move comes near the end of a week in which both consumer and wholesale inflation hit multi-year highs. Import and export prices were also at levels not seen since the last inflation peak, a period that prompted aggressive Fed rate hikes that began with four consecutive moves in three-quarter percentage point increases in 2022.
Former Federal Reserve Governor Kevin Warsh takes over at the helm of the Federal Reserve starting Friday and has indicated that he believes the central bank can actually lower rates in the current environment. At the last meeting of the Federal Open Market Committee, three members dissented from a vote to keep benchmark rates stable because they objected to language that suggested a cut would be the next step.
Economists participating in the Survey of Professional Forecasters believe second-quarter inflation will peak at 6%, a big boost from the last estimate, according to a statement Friday.