The Federal Reserve Board logo at the William McChesney Martin Jr. Building on September 16, 2025 in Washington, DC.
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 risen sharply over the past 24 hours due to ballooning U.S. Treasury yields, concerns that inflation will continue to rise and oil prices showing no signs of falling significantly amid the unresolved U.S.-Iranian war. Traders had previously given just a 50-50 chance of a rate hike in the first half of 2027.
U.S. President Donald Trump’s nominee, U.S. Federal Reserve Chairman Kevin Warsh, attends a Senate Banking, Housing and Urban Affairs Committee confirmation hearing on Tuesday, April 21, 2026 in Washington, DC, USA.
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.” [an] “This is an attempt to urge the Trump administration to resolve the Iran issue as soon as possible.”
Traders at Polymarket put the probability of a rate hike in 2026 at 35%.
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
Make CNBC your preferred source on Google and never miss a moment from the most trusted names in business news.
Source link
