Fed to hike? When traders see a rate increase coming
The Federal Reserve logo at William McChesney Martin Jr. in Washington on September 16, 2025. It can be seen in his building.
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While President Donald Trump chose to lead the Fed with interest rate cuts in mind, his appointee could preside over the first rate hike since 2023.
According to traders on prediction market platform Kalshi, this indicates that the possibility of the Fed raising interest rates next year is increasing.
Investors estimate the probability of the next interest rate hike to occur in July 2027 at 64%. They also think there is a 43% chance of a tighter policy this year.
The odds of a rate hike have risen in the last 24 hours in response to ballooning US Treasury yields, concerns that inflation will continue to rise and oil prices showing no signs of material decline amid the unresolved US-Iran war. Investors had previously given only a 50-50 chance that the rate hike would occur in the first half of 2027.
Kevin Warsh, chairman of the Federal Reserve’s nominee for U.S. President Donald Trump, during his Senate Banking, Housing and Urban Affairs Committee confirmation hearing on Tuesday, April 21, 2026 in Washington, DC, United States.
Graeme Sloan | Bloomberg | Getty Images
“Who is actually in the driver’s seat of monetary policy? We claim that these are the Bond Vigilantes,” Yardeni wrote.
But moves in bond markets could bring a resolution to the war in the Middle East and potentially ease inflation pressures, Chris Senyek, chief investment strategist at Wolfe Research, said in a note on Tuesday.
“We believe the U.S. Treasury bond market is signaling persistent inflation and this week is the final straw,” he said. “Our sense is that advocates of bond laws have the potential to push bond yields even higher. [an] “An attempt to force the Trump Administration to reach a quick resolution on Iran.”
Traders at Polymarket estimate the probability of a rate hike in 2026 at 35%.
Disclosure: CNBC and Kalshi have a business relationship that includes customer acquisition and minority investment.
