Markets price 37%–40% Fed hike odds

The U.S. rates market spent Friday repricing the idea that the Federal Reserve may not be done tightening. A hotter April producer-price report, rising oil-linked inflation concerns and a sharp move higher in long-dated Treasury yields pushed traders to assign materially higher odds to a year-end rate increase. CME FedWatch showed the probability of a 25-basis-point hike by December at about 40% on Friday, according to Reuters. Stock-index futures fell as yields climbed, with S&P 500 E-minis down more than 1% in early trading. ### What changed in the inflation data? The Bureau of Labor Statistics said on May 13 that its Producer Price Index for final demand rose 1.4% in April from the prior month, the largest monthly increase since March 2022. The index rose 6.0% from a year earlier, also the biggest 12-month gain since December 2022. BLS said nearly 60% of the April increase came from services, which rose 1.2%, while goods prices increased 2.0%. The measure excluding foods, energy and trade services rose 0.6% in April and 4.4% from a year earlier. ### Why did that feed directly into rate-hike pricing? CME says its FedWatch tool reflects probabilities implied by 30-Day Fed Funds futures prices. (bls.gov) Reuters reported on May 15 that the odds of a 25-basis-point Federal Reserve hike in December had more than doubled over the previous week to about 40%. The repricing followed a week in which investors had already absorbed stronger consumer-inflation data and higher energy prices. Reuters said traders were assuming interest rates could rise faster than previously expected as markets weighed the inflation effect of the Middle East conflict and supply disruptions around the Strait of Hormuz. (cmegroup.com) ### What did Treasury yields do? Reuters reported from New York on May 15 that the 2-year Treasury yield rose to as high as 4.071%, the 10-year reached 4.558%, and the 30-year bond yield touched 5.103%. The 30-year move put the long bond above 5% and at its highest level since May 2025, according to Reuters. (money.usnews.com) Bloomberg reported on May 13 that buyers received 5.046% at a $25 billion auction of new 30-year bonds, the first time since 2007 that investors obtained a 5% yield on that maturity. Bloomberg attributed the move to higher inflation expectations tied to surging energy prices. (money.usnews.com) ### How did stocks react as rates moved? Reuters reported that by 5:38 a.m. ET on May 15, S&P 500 E-minis were down 80.75 points, or 1.07%, while Nasdaq 100 E-minis were down 463.25 points, or 1.56%. Dow E-minis were down 330 points, or 0.66%. (bloomberg.com) Those declines came after record closes for the S&P 500 and Nasdaq in the prior session. Reuters said the selloff reflected concern that higher yields and firmer inflation could interrupt the rally that had carried the S&P 500 above 7,500. (money.usnews.com) ### What are Wall Street economists changing? Reuters, in a May 11 report carried by other outlets, said Goldman Sachs pushed its forecast for the first Federal Reserve rate cut to December 2026 from September 2026 and now expects another cut in March 2027. The report said Goldman cited elevated energy prices as a factor likely to keep inflation high. (money.usnews.com) Bank of America Global Research also shifted its outlook, according to the same Reuters report, and now expects the Fed to stay on hold through 2026 with cuts only in 2027. ### What data and dates matter next? (aol.com) The Bureau of Labor Statistics said the next Producer Price Index release, for May 2026, is scheduled for June 11 at 8:30 a.m. Eastern time. CME FedWatch says the next Federal Open Market Committee meeting is in mid-June, and the countdown on Friday pointed to the June 16-17 meeting window. (money.usnews.com) Those two dates will give investors the next official read on pipeline inflation and the next formal update on Federal Reserve policy. For now, the market move is visible in prices: a roughly 40% December hike probability, a 30-year Treasury yield above 5%, and weaker U.S. equity futures. (money.usnews.com) (bls.gov)