The odds of the Federal Reserve keeping interest rates unchanged through all of 2026 have jumped to 84% on the Polymarket prediction platform, as a broad stock selloff and rising oil prices complicate the central bank's path. Meanwhile, fed funds futures now imply a chance of a rate hike as soon as September.
Rate hike chatter returns
Treasury yields climbed as traders adjusted expectations. The shift in fed funds futures — which now price in a possible September rate increase — marks a stark reversal from earlier this year, when markets were betting on multiple cuts. The selloff in U.S. stocks accelerated this week, with major indices losing ground as investors recalibrated their outlook.
Oil prices surge on Middle East headlines
Oil prices jumped sharply after fresh headlines about renewed conflict in the Middle East. The spike adds to concerns that energy costs could feed into broader inflation, giving the Fed another reason to hold rates steady — or even raise them. The move higher in crude came as geopolitical risk premiums returned to the market.
What the bond market is saying
The yield on the two-year Treasury note, which is sensitive to Fed policy expectations, rose as traders reduced bets on near-term easing. The broader selloff in bonds pushed yields higher across the curve, reflecting a market that is now pricing in a more hawkish central bank. The shift has been abrupt: just weeks ago, the consensus was for a rate cut by mid-2025.
The Polymarket bet
Polymarket, a decentralized prediction platform, now shows an 84% probability that the Fed will not cut rates at any point in 2026. That's up from roughly 50% a month ago. The platform's users are effectively betting that the economy will remain too hot — or inflation too sticky — for the Fed to ease. The remaining 16% is split among various scenarios, including one or more cuts.
The next major test for markets comes with the release of the Consumer Price Index next week. A hot reading could solidify the rate-hike narrative; a cool one might revive hopes for a cut later this year.
