Markets see Fed’s next move as potential hike as oil prices, inflation fears rise
A man walks through a supermarket on March 17, 2026 in Houston, Texas.
Ronaldo Schemidt | AFP | Getty Images
Rising energy prices, rising import costs and increasing stagflation concerns are pushing the markets to think that the Fed’s next move could be an interest rate hike.
Traders in the futures market raised the odds of a rate hike by the end of 2026 to 52% on Friday morning, according to CME Group; This rate exceeded the 50% threshold for the first time. FedWatch tool.
The move comes after global benchmark crude oil prices surpassed $110, adding to a series of developments this week that suggest inflation pressures could increase as the Iran war drags on and U.S. tariffs increase costs.
In addition to inflation concerns, the Bureau of Labor Statistics reported Wednesday: import prices It increased by 1.3% in February, recording the largest monthly increase since March 2022, while export prices increased by 1.5%, the largest increase since May 2022.
At the same time, the Organization for Economic Co-operation and Development sharply raised its U.S. inflation forecast this year. The global forecasting agency predicts headline prices will rise by 4.2%, well above its previous forecasts and the Fed’s expectations of 2.7%.
Concerns about inflation come as Wall Street economists raise the possibility of a recession in the next 12 months.
Moody’s Analytics sees the chance of a decline closer to 50%, Goldman Sachs this week raised its forecast to 30%, and firms like EY Parthenon and Wilmington Trust put the chance at 40% or higher.
The prospect of both high inflation and economic recession puts the Fed’s dual goals of low inflation and full employment even more in tension. Central bank officials said they reached a consensus on a rate cut this year at their March meeting, but market pricing suggests there is no chance of a cut, although it is far from locking in an increase.
However, a speech on ThursdayFederal Open Market Committee Vice Chairman Philip Jefferson stated that recent developments are not necessarily an impetus for an interest rate increase.
Instead, he said, uncertainty over tariffs and the rise in oil prices “complicate the picture on both sides of our dual mandate of maximum employment and price stability, at least in the short term,” meaning “downside risk to the labor market and upside risk to inflation.”
“While this is a potentially challenging situation, I am confident that our current policy stance is well positioned to respond to a range of outcomes,” Jefferson said. he added.
The next meeting of the FOMC will be held on April 28-29. The market’s implied odds that the Fed will raise interest rates remain overwhelmingly stable at just 6.2%.
