Markets are pricing a 100% probability that the Federal Reserve holds rates at 3.50%-3.75% at the upcoming FOMC meeting, a shift from earlier expectations of rate cuts before the U.S.-Iran conflict escalated.
Market reaction
In the Fed Decisions from March to June market, odds for a “Cut-Pause-Pause” sequence have dropped. Traders have repriced the path as the Fed is now projected to keep rates unchanged across multiple meetings. The shift reflects geopolitical tensions and rising oil prices feeding into inflation expectations.
Why it matters
No trading volume is being reported in this market, which points to traders waiting for concrete signals from the upcoming FOMC meeting. With a steady hold already fully priced in, any deviation from that expectation could trigger sharp moves.
Rising energy costs are pushing headline inflation higher, which limits the Fed’s room to cut rates without destabilizing monetary policy. Traders positioned for a rate cut sequence face a difficult setup. Buying YES on a “Cut-Pause-Pause” outcome at current odds carries real risk unless economic indicators or FOMC language shift dramatically in the near term.
What to watch
Powell’s post-meeting comments and any updates to the dot plot will be the main signals on future rate direction. Inflation data and developments in the U.S.-Iran situation will directly affect how the Fed’s path gets repriced.
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