Fed Hike Odds Surpass Cut Odds as Stagflation Fears Grow
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- Atlanta Federal Reserve Bank's Market Probability Tracker now shows rate hike odds exceeding rate cut odds over the next three months, with cut probability plunging from ~60% in early February to ~16%, while hike probability rose from single digits to ~15% (having peaked at ~25% last week).
- Yardeni Research hiked its 2026 probability of a 1970s-style stock market meltdown with stagflation to 35%, up from 20%, though Fed Chair Jerome Powell dismissed "stagflation" as "a 1970s term" during his Wednesday press conference.
- The Iran war pushed oil prices above $100/barrel after U.S.-Israel joint strikes, driving inflation fears that caused Treasury yields to jump Thursday while gold and silver prices plummeted.
- Ryan Detrick, chief market strategist at Carson Group, said "A month ago, no one would have believed this," noting that inflation concerns were already brewing even before the war started in late February.
- Christopher Hodge, former New York Fed principal and chief U.S. economist at Natixis CIB Americas, called the rate hike possibility "nuts" and is still betting on two cuts this year, arguing the Fed "has a history of looking through energy shocks."
- Polymarket and Kalshi bettors assign roughly 85% probability the Fed holds rates steady through June, though Kalshi shows ~20% odds of a hike before year-end, up more than 10 points from the start of the month.
- U.S. consumer prices rose 2.4% in February, still stubbornly above pre-pandemic levels — though the figure was calculated before the U.S.-Israel joint strikes on Iran.
Why it matters: President Trump has pushed for Fed rate cuts this year, but the war-driven energy shock flipped market expectations from cuts to hikes in weeks. The most likely outcome — ~85% odds the Fed holds through June per prediction markets — leaves the administration without the easing it wanted, while Kalshi's 20% year-end hike probability marks a sharp reversal from March's consensus.
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