Interest Rate Swaps Show Over 80% Probability of Fed Hiking by End of 2026

Summary

Interest rate swaps now indicate an 80% probability of a Federal Reserve rate hike by the end of 2026 [USHK News]. This shift is driven by April CPI rising to 3.8% [Tip Ranks], soaring oil prices above $109 due to the Iran conflict [], and projections of Q2 inflation annualizing at 6.89% [MSN].

Impact Analysis

So the market is basically daring the Fed to move. We’re seeing interest rate swaps price in an 80% chance of a hike by late 2026 [USHK News], which is a massive swing from the rate-cut euphoria of previous months. The catalyst is a perfect storm: oil spiking past $109 due to the Iran conflict [] and April CPI hitting 3.8% [Tip Ranks]. With the Cleveland Fed projecting Q2 inflation to annualize at a staggering 6.89% [MSN], the ‘transitory’ narrative is officially dead.

What’s most critical is the ‘Warsh Factor.’ New Chair Kevin Warsh is under pressure to establish hawkish credentials to prevent long-term yields from spiraling [FX678]. While some economists call this a low-volume overreaction [Reuters], the 30-year yield breaking 5% suggests otherwise [JIN10]. Bottom line—the market is front-running a strategic pivot. I’d lean into floating-rate instruments and dividend stocks [MSN] to hedge this. The risk isn’t just ‘higher for longer’ anymore; it’s ‘higher from here.’