Construction of the Mariner S. Eccles Federal Reserve Building on Monday, December 15, 2025 in Washington, DC, USA.
Al Drago | Bloomberg | Getty Images
For the first time in this economic cycle, the market believes the Fed’s next action will be to raise interest rates.
After unexpectedly high inflation over the past week, traders in the federal funds futures market are pricing in inflation as early as December, giving them much more certainty into early 2027, according to CME Group’s FedWatch tool.
The index, which uses the price of 30-day federal funds futures contacts to measure probability, says the probability of a rate hike in December is nearly 51%, but the probability of a rate hike by January is about 60%, and the probability of a rate hike in March is more than 71%.
The move came near the end of a week when both consumer and wholesale inflation hit multi-year highs. Export and import prices are also at levels not seen since the last inflation spike, which prompted the Fed to aggressively raise interest rates by four consecutive three-quarters of a percentage point increments in 2022.
Former Federal Reserve President Kevin Warsh took over the central bank’s reins on Friday and said he believes the central bank can indeed lower interest rates in the current environment. At the last Federal Open Market Committee meeting, three members voted against leaving the benchmark rate unchanged, objecting to language that suggested the next step would be a rate cut.
Economists participating in the Professional Forecasters Survey expect inflation to peak at 6% in the second quarter, a sharp increase from their previous forecast, according to a statement Friday.
