Fed Hike Odds Climb to 49% for December as Hormuz Disruptions Stoke Inflation
Updated
Updated · USA TODAY · May 18
Fed Hike Odds Climb to 49% for December as Hormuz Disruptions Stoke Inflation
9 articles · Updated · USA TODAY · May 18
CME FedWatch showed traders pricing a roughly 49% chance of a Fed rate hike in December and 58% in January, overtaking the odds of a cut.
Strait of Hormuz disruptions have lifted oil, gas and related goods prices, while solid U.S. job growth in March and April has reinforced fears that inflation will stay sticky.
Fed officials have not signaled an imminent hike: the March 18 median projection still implied one quarter-point cut this year, though three members dissented from April guidance they saw as too dovish.
Kevin Warsh, who chairs his first FOMC meeting in June, has argued for looking through one-off price spikes, but economists say sticky inflation and his single vote on the 12-member committee limit his room to push cuts.
For consumers, a hike would eventually raise borrowing costs on credit cards, auto loans and mortgages while boosting savings yields, though it would not directly reopen Hormuz or quickly lower gasoline prices.
With markets betting on a rate hike, is the Fed risking its credibility by clinging to a dovish inflation outlook?
Can new Fed Chair Kevin Warsh's AI theory defy the inflationary pressures from the ongoing Middle East conflict?
Fed Confronts 3.6% Inflation and Energy Crisis in 2026: Hormuz Disruption, War, and Policy Uncertainty
Overview
In mid-May 2026, market expectations for Federal Reserve rate hikes surged as recent economic data and investor sentiment shifted abruptly. The probability of a rate hike climbed to 45%, even as stock markets reached new highs. This change reflects a growing belief that the Fed may need to tighten monetary policy further to address persistent inflationary pressures. The heightened expectation for tighter policy is driven by resilient US economic growth and persistently high energy prices. Together, these factors signal that the central bank faces increasing pressure to act, shaping the outlook for monetary policy in the months ahead.