Markets are increasingly pricing in US Federal Reserve rate hikes despite policymakers signalling a more cautious approach following the March decision to hold rates at 3.5%–3.75%.
CME FedWatch data shows a 10.3% probability of a rate hike in April and zero chance of a cut, marking a sharp shift from expectations earlier this year.
Former IMF chief economist Gita Gopinath said markets are “pricing in more hawkish central bank reaction functions” than officials have indicated.
The repricing comes as oil prices rise above $111 per barrel amid geopolitical tensions, fuelling inflation concerns and prompting traders to reassess rate trajectories.
Despite this, the Fed’s latest projections still point to one rate cut in 2026, although internal views are shifting, with more officials now favouring no cuts.
Major banks including Goldman Sachs and Barclays have pushed back expectations for rate cuts, reflecting uncertainty around inflation and energy-driven price pressures.
The divergence highlights a growing tension between market expectations and central bank guidance, leaving investors uncertain whether the current pricing reflects a real policy shift or an overreaction.