Markets Are Betting on a Fed Hike, But Central Bankers Aren’t Even Close: Who’s Wrong?

A significant divergence has emerged between market expectations and central bank signaling, particularly after the Federal Reserve held rates steady. Futures markets have eliminated all 2026 rate-cut expectations and are now pricing in hike probabilities that central bankers have not endorsed, driven partly by oil prices topping $111 per barrel due to the Iran conflict. Former IMF Chief Economist Gita Gopinath noted this disconnect, suggesting markets are pricing a more hawkish reaction than central bankers, who likely prefer a wait-and-see approach regarding energy price increases. The Fed's March dot plot still projects one 25-basis-point cut this year, though more officials favor zero cuts, and the median 2026 inflation forecast rose due to the oil shock. Fed Chair Jerome Powell indicated cuts depend on materializing inflation progress. The core question remains whether markets are correctly anticipating a policy shift or overreacting to a potentially temporary energy shock.

(Source：BeInCrypto)