Fed alert

• Fed futures now show zero chance of rate cuts in 2024 and an 80% probability of a rate hike as soon as April 2025
• The 'trimmed mean' inflation measure favored by incoming Fed Chair Kevin Warsh posted its largest monthly increase since January 2024, rising to 2.8% annually
• Oil prices remain above $100 per barrel for both Brent and WTI crude due to ongoing Iran war tensions, while President Trump travels to Beijing for a summit with Xi Jinping focused on trade, rare earths, and geopolitics

Market Summary: Fed Rate Hike Expectations Rise on Hot Inflation Data

Key Developments:

U.S. inflation pressures intensified in April, with consumer price inflation hitting 3.8% and expected to exceed 4% in May—double the Federal Reserve's 2% target. The Cleveland Fed's "trimmed mean" CPI, favored by incoming Fed Chair Kevin Warsh, posted its largest monthly increase since January 2024, rising to 2.8% annually.

Market Implications:

Fed futures markets have eliminated expectations for rate cuts in 2026, with an 80% probability now pricing in a rate hike as early as April 2027. The inflation data triggered a sharp selloff in bonds, pushing 30-year U.S. Treasury yields above 5%. British gilts also declined amid political uncertainty surrounding Prime Minister Keir Starmer.

Geopolitical Factors:

The ongoing Iran war continues to elevate oil prices, with both Brent and WTI crude remaining above $100 per barrel despite modest Wednesday declines. President Trump is visiting Beijing for a summit with President Xi Jinping, focusing on trade, AI, geopolitics, and critical rare earth supply commitments.

Equity Markets:

Asian markets rebounded Wednesday, with South Korea's KOSPI surging over 2% after early losses. European stocks also opened higher despite bond market turmoil.

Upcoming Catalysts:

• April Producer Price Index data (8:30 AM EDT)
• 30-year Treasury auction testing investor appetite (1:00 PM EDT)
• Cisco earnings report
• Speeches from Boston Fed's Susan Collins and Minneapolis Fed's Neel Kashkari

The combination of persistent inflation, geopolitical tensions, and shifting Fed policy expectations creates a challenging environment for both fixed income and equity investors.