Inflation Hits Three-Year High, Lifting Fed Hike Odds to 68%

Latest data released May 25 show April CPI rising 3.8% annualized—the fastest pace since May 2023—while PPI jumped 6% and its energy component surged 22.7%, driven by WTI crude near $97 per barrel after the U.S.–Iran conflict disrupted shipping. The surge follows six Fed rate cuts since September 2024 and has pushed CME FedWatch probabilities to a 68% chance of a rate hike by year-end 2026. Markets now price renewed tightening under new Fed Chair Kevin Warsh, raising the risk that higher borrowing costs and energy expenses will curb spending, compress earnings, and threaten the S&P 500’s rally.