The Federal Reserve Board logo at the William McChesney Martin Jr. Building in Washington, September 16, 2025.
Kevin Dietch | Getty Images
President Donald Trump chose to lead the Fed with interest rate cuts in mind, but his appointee could lead the Fed’s first rate hikes since 2023.
That’s according to traders at prediction market platform Kalsi, who say it’s increasingly likely that the Fed will raise interest rates next year.
Traders see a 64% chance that the next rate hike will occur by July 2027. They also believe there is a 43% chance that tightening policies will be implemented as early as this year.
Probability of a rate hike has soared in the past 24 hours as U.S. Treasury yields balloon, concerns that inflation will continue to rise and oil prices show no signs of falling significantly amid the unresolved Iran war. Traders had previously given just a 50-50 chance of a rate hike in the first half of 2027.
Incoming Federal Reserve Chairman Kevin Warsh attends his confirmation hearing before the Senate Banking, Housing and Urban Affairs Committee in Washington, April 21, 2026.
Graham Sloan | Bloomberg | Getty Images
“Who is actually in the driver’s seat of monetary policy? We would argue it is the bond vigilantes,” Yardeni wrote.
But Wolf Research chief investment strategist Chris Seniek said in a note Tuesday that the bond market movement could push for a resolution to the Middle East war and ease inflationary pressures.
“The U.S. Treasury market is signaling sustained inflation, and we believe this week was the final straw,” he said. “Our sense is that bond vigilantes could push yields higher to encourage the Trump administration to quickly resolve the Iran issue.”
Traders at Polymarket put the probability of a rate hike in 2026 at 35%.
