Probability of a Near-Term Fed Rate Hike Has Increased Sharply

In the United States, April inflation exceeded expectations, reaching 3.8% year-over-year. The increase was mainly driven by rising energy prices linked to the conflict with Iran. Higher fuel costs also pushed up transportation, food, and production expenses, raising concerns about broader inflationary pressure across the economy.

According to the data, the average gasoline price rose from $3.14 last year to around $4.50. Meanwhile, U.S. President Donald Trump expressed support for a temporary suspension of the federal gasoline tax in order to ease the burden on drivers.

Rising energy prices are reportedly weakening consumer spending, prompting markets to reassess expectations for Federal Reserve interest rate policy. In prediction markets, the probability of a Fed rate hike by July 2027 has climbed to 53%. Approximately 49 days remain until the next policy decision cycle, and investors appear divided on whether the Fed will act sooner than expected or continue waiting longer.

At the same time, inflation has overtaken wage growth for the first time in nearly three years. Over the past 12 months, consumer prices increased by 3.8%, while wage growth remained at 3.6%. This situation is believed to be eroding the purchasing power of American workers.

The chart compares inflation and wage growth in the U.S.: yellow represents inflation, while blue indicates wage growth.

Federal Reserve official Austan Goolsbee also stated that the April Consumer Price Index report came in worse than expected. According to Goolsbee, the most concerning aspect of the report was the sharp increase in inflation within the services sector.

See also: "April U.S. CPI Report Sparks Fresh Concerns Over Fed Rate Hikes in 2026"

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