A man walks through a supermarket in Houston, Texas, on March 17, 2026.
Ronaldo Shemit | AFP | Getty Images
Rising energy prices, rising import costs and growing concerns about stagflation have led to widespread speculation in the market that the Fed’s next move could be to raise interest rates.
Futures traders on Friday morning raised the probability of a rate hike by the end of 2026 to 52%, surpassing the 50% threshold for the first time, according to CME Group’s FedWatch tool.
The move comes as global benchmark oil prices have climbed above $110, adding to a series of developments this week that suggest inflationary pressures may be building as the Iran war drags on and costs rise from U.S. tariffs.
Adding to inflation concerns, the Bureau of Labor Statistics reported Wednesday that import prices rose 1.3% in February, the largest monthly increase since March 2022, while export prices rose 1.5%, the largest increase since May 2022.
At the same time, the Organization for Economic Co-operation and Development significantly raised its forecast for U.S. inflation this year. The global forecasting organization expects headline price increases to be 4.2%, significantly higher than prior expectations and also significantly higher than the Fed’s forecast of 2.7%.
Concerns about inflation come as Wall Street economists raise the possibility of a recession over the next 12 months.
Moody’s Analytics puts the chance of a recession at nearly 50%, Goldman Sachs raised its forecast this week to 30%, and firms like EY Parthenon and Wilmington Trust have odds of more than 40%.
The possibility of both higher inflation and a recession will further strain the Fed’s twin goals of low inflation and full employment. At a meeting in March, central bank officials agreed there would be only one rate cut this year, but market prices suggest a rate cut is unlikely, although a hike is far from confirmed.
However, Federal Open Market Committee Vice Chairman Philip Jefferson said in a speech Thursday that recent developments do not necessarily trigger a rate hike.
Instead, he said, uncertainty around tariffs and high oil prices “complicate the picture of both our dual mandates of maximum employment and price stability, at least in the short term,” which means “downside risks to the labor market and upside risks to inflation.”
“While this is a potentially difficult situation, we remain confident that our current policy stance is well positioned to respond to a variety of outcomes,” Jefferson added.
The next FOMC meeting will be held on April 28-29. The market’s implied odds are overwhelmingly for the Fed to remain unchanged, with only a 6.2% chance of a rate hike.
