Fed Rate Hike Odds Rise to 90% Ahead of Wednesday's Decision

• The proposed 25 basis point hike would bring the Fed funds rate to 3.75-4.00%, with the 2-year Treasury yield currently at 4.65%, still 90 bps above the current rate ceiling
• At least seven FOMC members appear likely to vote for a hike, including hawkish voters Kashkari, Hammack, Logan, Bowman (who dissented from a 50 bps cut last year), and Paulson
• Chair Kevin Warsh faces political pressure from President Trump, who previously threatened former Chair Powell and has called for Fed Governor Lisa Cook's resignation, though the Supreme Court ruled she cannot be removed

Summary: Fed Rate Hike Odds Rise to 90% Ahead of Wednesday's Decision

Key Development:

Market expectations for a Federal Reserve interest rate hike have reached 90% probability ahead of Wednesday's FOMC decision. The anticipated move would raise the Fed funds rate by 25 basis points to 3.75-4.00%, marking the first rate adjustment since December of the previous year.

Market Context:

Current bond yields reflect significant pressure, with the 10-year and 30-year bonds trading above 5%, while the 2-year yield stands at 4.65%—90 basis points above the projected high end of rates. Inflation has moved well above the Fed's 2.00% target, driven by tariff policies and elevated oil prices stemming from conflict with Iran.

Political Dynamics:

Fed Chair Kevin Warsh faces potential pressure from President Trump, who has historically opposed rate hikes and previously criticized former Chair Jerome Powell with threats of criminal charges. Trump also called for Fed Governor Lisa Cook's resignation; she has since sued the White House, with the Supreme Court ruling she cannot be removed until the case resolves.

Voting Breakdown:

A quorum of seven votes is needed to enact policy changes. Hawkish members including Presidents Kashkari, Hammack, and Logan voted for hikes previously, while dovish members include Governors Waller and Williams. Governor Michelle Bowman, who dissented from a 50 bps cut previously, and Philadelphia Fed President Anna Paulson are expected to support the hike, potentially delivering the seven required votes.

Market Implications:

With expectations largely priced in at 90% probability, significant market movement will depend on any unexpected deviations from the anticipated decision during Wednesday's 2 PM ET announcement and subsequent press conference.