Bond market sees higher odds of Fed rate hike by year-end amid inflation concerns

The bond market now prices a 12% probability of a Fed rate hike by year-end, against just 5% for a rate cut, a shift driven by persistent inflationary pressures from geopolitical tensions and rising energy costs.

On Polymarket, the odds of a 25 basis point Fed rate decrease after the April meeting sit at 0.1% YES. The probability of a 50+ basis point cut is also 0.1% YES. The market shows near-total disbelief in any near-term rate cuts, even after the Fed held rates steady at its April meeting.

The Fed held rates between 3.50% and 3.75% following the April meeting, with internal dissent on the decision. Bond market pricing now suggests traders treat inflation as a more immediate threat than they did previously. Core inflation is running near 3% year-over-year, energy prices are spiking, and traders are pricing in the possibility that the Fed may need to tighten rather than ease.

USDC volume in these markets was $10,819 over the past 24 hours. The cost to move the market by 5 percentage points is around $2,075 for the 25 bps cut contract, which means relatively moderate capital could produce significant price swings.

For traders, this repricing warrants reassessing positions on Fed policy. A YES share on no rate cuts in 2026 is a direct bet on sustained inflation concerns, but it requires confidence that geopolitical tensions will keep upward pressure on prices. Zero cuts for 2026 is priced at 46%, meaning the market leans toward the Fed standing pat rather than easing.

Watch for Fed Chair Powell’s statements and upcoming inflation reports. Any softening in inflation data or dovish rhetoric from the Fed could move these odds. Inflation-related economic releases in the coming months will be the main catalysts.

Get prediction market intelligence as a structured API feed. Early access waitlist.