Expectations for a future Federal Reserve rate hike are growing ahead of this week’s Federal Open Market Committee meeting, though officials are widely anticipated to leave benchmark rates unchanged for now.
Prediction markets on Kalshi currently assign a 64% probability to the Fed raising interest rates before July 2027. The shift in sentiment comes as inflation remains elevated, with U.S. consumer prices rising 0.5% in May and annual inflation accelerating to 4.2%.
Investor Sentiment Shifts
A Bank of America fund manager survey revealed a sharp change in outlook. Nearly 40% of respondents now expect at least one rate hike within the next 12 months, a significant jump from 16% a month earlier. At the same time, the proportion anticipating rate cuts dropped to 28%.
CME FedWatch data shows a 99.4% probability that officials will hold rates steady at the conclusion of their June 17 meeting. Kevin Warsh is chairing his first FOMC meeting after being appointed by President Donald Trump.
Outlook Through 2027
A separate CNBC survey of 32 economists, strategists, and fund managers found none expect a rate change at this week’s meeting or at any point through 2027. Fed funds futures markets have also shifted, with traders no longer expecting significant policy easing over the next several years.
However, 88% of CNBC respondents expect the Fed to remove language suggesting its next move would likely be a cut. Such a shift would signal policymakers are no longer leaning toward easing monetary policy.
Inflation and Geopolitical Factors
Rising energy costs have contributed to the inflation picture, with oil prices moving higher amid tensions between the United States and Iran. The conflict has raised concerns about potential supply disruptions.
EY chief economist Gregory Daco noted that while Warsh is generally perceived as dovish, he will inherit a committee that has become “noticeably more hawkish.” A potential agreement between the U.S. and Iran, announced after CNBC’s survey was completed, could ease energy price pressures and give policymakers more flexibility if inflation begins to cool.
This article is for informational purposes only and does not constitute investment advice.
