Summary

Market data from the CME FedWatch Tool indicates a 96.8% probability that the Federal Reserve will maintain interest rates at 3.5%-3.75% in June [Golden Finance][]. This follows a highly divided 8-4 FOMC vote in April, driven by concerns over 3.8% inflation and oil prices exceeding $100 due to Middle East tensions [Reuters][Sina Finance][Reuters].

Impact Analysis

So, the market is basically treating the June pause as a done deal at 96.8%, but don’t let the ‘no change’ headline fool you—the underlying signal is incredibly hawkish [Golden Finance][]. We’re looking at the most divided Fed since 1992, with that 8-4 split showing that the internal consensus on ‘higher for longer’ is starting to fracture toward even tighter policy [Reuters][Invezz]. With oil sitting over $100 and the U.S.-Iran conflict driving a massive 21.2% spike in gas prices, the ‘transitory’ narrative is dead [Tip Ranks][Reuters]. While traders have scaled back hike bets to around 18-25% by year-end, I think they’re still too optimistic about a pivot [Sina Finance][Reuters]. The real risk the market is missing is that Kevin Warsh might inherit a stagflationary mess that necessitates a hike, not just a delay [Reuters][Invezz]. Bottom line: stay short on duration as yields likely test new highs, and keep a heavy tilt toward energy. The ‘pause’ is just a placeholder for more pain if inflation doesn’t break.