Markets are starting to price in a very different path for the Federal Reserve after a fresh batch of hotter-than-expected inflation data, Reuters writes.
Investors now see roughly a 60% chance the Fed’s benchmark interest rate will be 25 basis points higher by January, according to CME FedWatch, with a December hike viewed as a coin toss. That marks a sharp turn from the Fed’s recent messaging, which has continued to suggest the next move would more likely be a cut.
The shift comes after consumer prices, wholesale prices and import costs all topped forecasts, while retail sales showed shoppers are still spending despite higher prices. The data complicates the outlook for incoming Fed Chair Kevin Warsh, who is set to take over from Jerome Powell amid pressure from President Donald Trump for lower rates. Warsh has argued that artificial intelligence could lift productivity and ease inflation, but markets are now bracing for a more hawkish Fed.
