After hot April CPI, markets now price 59% chance of a Fed rate hike

CME FedWatch showed on May 14 that traders were assigning higher odds to a Federal Reserve rate increase later in 2026 after two stronger-than-expected U.S. inflation reports this week. The repricing followed a Bureau of Labor Statistics report on May 12 showing consumer prices rose 3.8% from a year earlier in April and another report on May 13 showing producer prices for final demand jumped 1.4% in the month. The Federal Reserve left its target range unchanged at 3.50% to 3.75% on April 29. Fed officials said then that inflation remained elevated, in part because of higher global energy prices. ### Which inflation reports changed the rate outlook? The Bureau of Labor Statistics said on May 12 that the consumer price index rose 0.6% in April after a 0.9% increase in March, with the annual rate accelerating to 3.8%. Core CPI, which excludes food and energy, rose 0.4% on the month and 2.8% from a year earlier. Shelter and gasoline were the largest contributors to the monthly increase, according to the agency. (cmegroup.com) The Bureau of Labor Statistics said on May 13 that the producer price index for final demand rose 1.4% in April, with goods up 2.0% and services up 1.2%. The 12-month increase in final-demand prices was 6.0%, and the agency said energy prices rose 7.8% in the month. ### Where did the 59% figure come from? (bls.gov) InvestingLive reported on May 13 that markets were pricing a 59% probability of a Fed rate hike in April, citing moves in futures markets after the inflation data. CME says its FedWatch tool tracks the likelihood of changes in the federal funds target rate using 30-day fed funds futures prices, and instructs media organizations to attribute those probabilities to CME FedWatch. (bls.gov) CME's public FedWatch landing page available on May 14 does not display the full meeting-by-meeting table in the search snippet returned by web results, so the precise 59% reading could not be independently viewed directly from the snippet alone. But the market narrative that inflation data pushed traders to price in a higher chance of a later hike was reflected in multiple market reports published on May 13 and May 14. (investinglive.com) ### What had the Fed said before these reports landed? The Federal Open Market Committee said on April 29 that economic activity had been expanding at a solid pace, job gains had remained low on average, and inflation was elevated. The statement said the recent increase in global energy prices was one reason inflation was still running high. (cmegroup.com) The Federal Reserve Board said separately that the interest rate paid on reserve balances would remain 3.65% effective April 30, consistent with an unchanged target range of 3.50% to 3.75%. That left traders to focus on incoming inflation data and futures pricing rather than on any immediate change in policy. (federalreserve.gov) ### Why were traders looking so far out into 2026? CME says FedWatch probabilities are derived from fed funds futures, which map expected policy rates across upcoming Federal Open Market Committee meetings. That means a jump in inflation can shift not only expectations for the next meeting but also the implied path for rates months ahead. (federalreserve.gov) Market commentary published on May 13 described the April CPI and PPI releases as a direct trigger for repricing. InvestingLive said cuts were no longer part of the near-term discussion after the data, while Forex.com said traders were pricing a 40% chance of at least one rate hike by year-end, underscoring how quickly expectations were moving across contracts. (cmegroup.com) ### What is the next concrete checkpoint for this story? June 17 is the date of the Federal Reserve's next scheduled policy decision, according to the central bank's meeting calendar. The minutes of the April 29 meeting are due three weeks after that decision date under the Fed's regular release practice, and investors will also get another round of CPI and PPI data before the June meeting. (investinglive.com) (federalreserve.gov)