# Federal Reserve Won't Cut Rates This Week, Yet Market Is Still Betting on "Rate Hikes"?

Reuters Finance App — Latest CME Fed Watch data shows that the market expects a 98.9% probability that the Federal Reserve will keep interest rates unchanged at this week’s (March 18-19) policy meeting, with a 0% chance of a 25 basis point cut, and a rare 1.1% chance of a 25 basis point hike.

This is the first time since this rate hike cycle that the market has slightly priced in a rate increase, reflecting recent oil price surges and inflation concerns that have significantly altered expectations for rate cuts.

This small rate hike pricing marks the first such adjustment in this cycle, indicating a reassessment of the Fed’s “higher for longer” path. Oil prices have surged nearly 50% in two weeks, combined with continued strong US economic data, leading traders to sharply reduce expectations for rate cuts in 2026, and even consider the possibility of rate hikes.

April unchanged probability 95.9%, June unchanged probability 78.1%

Market expectations for upcoming meetings: by April, a 3.1% chance of a 25 basis point cut, 95.9% chance of no change, and 1.1% chance of a 25 basis point hike; by June, an 78.1% chance of no change, and a 20.2% chance of at least a 25 basis point cut.

Markets still expect rate cuts to start around mid-year, but the probability has significantly decreased from previous levels. Elevated oil prices and rising inflation expectations are squeezing the Fed’s room to cut rates, with June being the earliest window for potential cuts, contingent on a clear cooling of inflation data.

Oil Price Surge Fuels Inflation Worries, Strong Economic Data Delay Rate Cut Expectations

The disruption in the Strait of Hormuz has caused oil prices to surge nearly 50% in two weeks. The energy shock has propagated from gasoline and aviation fuel to transportation, chemicals, manufacturing, and agriculture, pushing up core inflation and living costs. Continued strong US economic data (resilient employment, better-than-expected consumer spending) further diminishes the need for rate cuts.

The Fed faces a “stagflation dilemma”: energy shocks push inflation higher requiring tightening, but simultaneously, growth and employment need easing support. Market pricing has shifted toward “higher for longer,” with short-term financial conditions tightening.

Policy Statement and Economic Outlook Focus, Middle East Conflict Impact Assessment Key

Markets will closely watch this week’s Fed policy statement, the Summary of Economic Projections (SEP), and the dot plot for assessments of the impact of Middle East conflicts. How Fed officials describe inflation persistence, growth risks, and energy shocks will determine the market’s re-pricing of the rate path.

If the statement emphasizes “looking through supply shocks” and focuses on growth risks, rate cut expectations may be reignited; if inflation concerns are reinforced, tightening expectations will strengthen further. Short-term volatility remains high, and investors should carefully interpret any wording changes in Powell’s press conference.

Summary

The Fed has a 98.9% chance of holding rates steady this week, with a rare 1.1% chance of a rate hike, marking the first in this cycle. Oil prices have surged nearly 50% in two weeks, heightening inflation worries, and strong economic data further delay rate cuts. By April, a 95.9% chance of no change; by June, a 20.2% chance of at least a 25 basis point cut.

The Fed faces a stagflation dilemma: energy shocks push inflation higher while restraining growth, making a cautious or hawkish stance more likely in the short term. The policy statement, economic outlook, and impact assessments of Middle East conflicts will be focal points. Powell’s tone in the press conference will largely drive the market’s re-pricing of the rate outlook.

Short-term volatility remains high; investors should be alert to any hawkish signals that could further tighten financial conditions, and monitor inflation data and geopolitical developments.

(Edited by: Wang Zhiqiang HF013)