As the Federal Open Market Committee (FOMC) meeting on June 17 approaches, market expectations have undergone a notable shift. Kalshi prediction market data now assigns a 64% probability of a Federal Reserve rate hike before July 2027, driven by persistent inflation and rising energy costs. Meanwhile, CME FedWatch data indicates a 99.4% chance that the Fed will hold benchmark rates unchanged at this week's meeting.
Kalshi: 64% Probability of Hike by 2027
Kalshi traders have increased bets on tighter monetary policy amid a higher-than-expected inflation reading. The U.S. consumer price index rose 0.5% month-over-month in May, accelerating the annual rate to 4.2% from 3.8% in April. Rising oil prices—driven by tensions between the United States and Iran and concerns over Strait of Hormuz disruptions—have added further upward pressure on the inflation outlook. While no immediate action is expected from the FOMC, the forward-looking market data points to a significant change in sentiment regarding the path of interest rates.
CNBC Survey: 88% of Economists See Removal of Easing Bias
CNBC's latest Fed Survey, which polled 32 economists, strategists, and fund managers, revealed that 88% of respondents expect the FOMC to remove language suggesting that the next move would be a rate cut. Gregory Daco, chief economist at EY, told CNBC: "While Warsh is generally perceived as dovish, he will inherit a committee that has become noticeably more hawkish." None of the respondents anticipate a rate change at this week's meeting or through 2027, but the overall stance is shifting. A Bank of America fund manager survey corroborated this: nearly 40% of respondents expect at least one rate hike within the next 12 months, up from 16% a month earlier, while only 28% expect cuts.
Inflation, Oil, and Geopolitical Crosswinds
May's CPI data has effectively erased expectations for near-term rate cuts. Kalshi data now shows less than 30% probability of any rate cut before 2027. President Donald Trump has long pushed for lower rates, but higher inflation—partly due to tariffs and the Iran conflict—has pushed easing expectations further out. However, a potential U.S.-Iran agreement announced after the CNBC survey was completed could alleviate energy price pressures, giving the Fed more flexibility if inflation cools. CNBC also reported that a source familiar with the matter said Kevin Warsh, who is chairing his first FOMC meeting, may enjoy more autonomy from political pressure due to President Trump's trust. The FOMC statement due at 2:00 p.m. ET on June 17 will be closely scrutinized for any sign of a hawkish tilt.