In April 2026, the US CPI year-over-year growth rate rose to 3.8%, the highest level since May 2023, significantly above the prior value of 3.3%. In the same month, the core CPI year-over-year growth rate reached 2.8%, also exceeding market expectations. Less than a month later, a May nonfarm employment report released by the US Department of Labor further reinforced the narrative of economic resilience—nonfarm payrolls added 172,000 jobs, far above the market expectation of 88,000. The previous two months were revised upward by a cumulative 93,000, and the three-month average rose to 188,000, the highest since April 2024.
Strong employment combined with a rebound in inflation would normally form a typical logic of rate-hike projections. But at the same time, the White House issued policy signals that pointed in the opposite direction. US President Trump, ahead of an FOMC meeting, publicly pressured the Federal Reserve’s newly appointed chair Kevin Wosch, demanding rate cuts, saying, “There is no reason to raise rates.”
The tension between the data and political will has made the upcoming FOMC meeting scheduled for June 16 to 17 a key focal point for the market. This meeting will not only be Wosch’s first meeting presiding since taking office, but it may also become a dividing line for the easing cycle since 2024.
Why inflation is accelerating again
To understand the policy pressure the Federal Reserve is facing, the first step is to clarify the structural forces driving the recent inflation rebound.
In April 2026, the CPI year-over-year growth rate jumped from 3.3% in March to 3.8%, with energy prices playing a particularly notable role. Due to geopolitical conflicts, gasoline prices continued to climb, and oil prices contributed about 40% of the month-over-month increase. But the upward move in inflation was not caused by energy alone—core CPI month-over-month growth reached 0.4%, exceeding expectations of 0.3%, and technical factors in the housing component played an important part.
What is worth noting is that two key core inflation measures in the US are showing a rare divergence. The Federal Reserve’s more preferred core PCE rose to 3.3% in April, while core CPI for the same period was 2.8%. This gap makes policy communication more complex. Wosch, who is already alert to this, has publicly stated that core PCE is a “rough estimate,” and that it includes distortions caused by multiple one-off factors.
From a broader perspective, inflation stickiness is no longer confined to energy and housing. Service-sector inflation, labor-cost pass-through, and structural adjustments in supply chains are all pushing the price-fighting benchmark higher. The core CPI’s upside performance in April suggests that inflation pressure is evolving from one-off shocks toward a more entrenched direction.
Why strong employment did not lift wages
The May nonfarm employment data brought the market not only a beat in headline employment totals, but also deep information from within the report.
In that month, nonfarm payrolls added 172,000 jobs, far above expectations of 88,000, and the first two months were revised up by a cumulative 93,000. The unemployment rate stayed at 4.3%, and the labor force participation rate remained stable at 61.8%. Together, these data point to one conclusion: the US labor market is still operating steadily and has not shown the typical weak signals seen on the eve of a downturn.
However, wage growth did not strengthen in step with employment. In May, average hourly earnings rose 3.4% year-over-year, down 0.2 percentage points from 3.6% in April. The month-over-month growth rate was 0.3%, relatively mild and controllable. Average weekly hours remained unchanged at 34.3 hours.
This combination of “employment strong, wages weak” is significant for the Federal Reserve. Wages are an important channel for inflation transmission; moderate wage growth means the job market has not yet entered an overheating state, giving the Fed more flexibility in rate-hike decisions. But on the other hand, if such strong employment growth continues, it may ultimately exert pressure on inflation through demand channels.
In a research note after the release of the May nonfarm data, Huatai Securities pointed out that the sharp upside surprise in new nonfarm payrolls increased the necessity of additional Federal Reserve rate hikes. This is the core logic behind the market’s rapid adjustment after the data release.
How the market is pricing rate hikes this year
CME FedWatch Tool data clearly reflects the evolution of market expectations. This is one of the most important real-time gauges for judging the Fed’s policy direction.
As of June 9, 2026, CME data shows that the probability the Fed keeps rates unchanged at the June FOMC meeting is about 97%, while the probability of a 25-basis-point cut is only 3%. The current policy rate range is 3.50% - 3.75%.
The real disagreement in the market is concentrated on the policy path in July and beyond. Data shows the probability of holding rates steady in July is about 81.9%, while the probability of cumulative 25-basis-point hikes has risen to 15.5%, and the probability of a 25-basis-point cut is only 2.5%. In other words, while keeping rates unchanged in June is still near consensus, expectations of rate hikes later in the year have been gradually accumulating in trading.
In terms of full-year outlook, the market assigns a relatively high probability that the Fed will not cut rates again in 2026, while the probability of cumulative 25-basis-point hikes is rising. Goldman Sachs has urgently adjusted its monetary policy expectations, removing its view of rate cuts for the current year and pushing two 25-basis-point cut operations to June and December 2027, respectively.
This shift in the expectation structure signals the market’s repricing of the Fed’s policy stance—from “when to cut rates” to “whether rate hikes will happen.”
What signals will Wosch’s first FOMC release
Kevin Wosch was sworn in as Chair of the Federal Reserve on May 22, 2026. The FOMC meeting on June 16 to 17 will be the first rate-setting meeting he presides over since taking office. With inflation rebounding, employment staying strong, and the White House applying pressure, the signal significance of this meeting far exceeds the rate decision itself.
Markets and analysts generally focus on changes in signals across the following three dimensions.
First, whether the policy statement removes language about a “easing bias.” After three consecutive rate cuts in September, October, and December 2025, the Fed added language describing a policy “easing bias” in the December policy statement. If this meeting deletes that wording, the market will interpret it as the Fed officially making room for rate hikes.
Second, changes in the interest-rate forecast in the dot plot. The quarterly dot plot is the concentrated projection of Fed officials’ interest rate expectations. Previously, the median in the dot plot indicated only cumulative rate cuts of 25 basis points in 2026. If the dot plot introduces expectations of rate hikes—meaning the median points to an increase in the policy rate—it would mark the official end of the easing cycle since the late summer of 2024.
Third, the tilt direction in the risk distribution chart. The market will pay attention to changes in the FOMC statement regarding the weighting of inflation risks versus employment risks. If the weight assigned to inflation risks continues to heat up while the weight assigned to employment risks relatively declines, it would further reinforce hawkish signals.
If these three signals appear simultaneously, they would form a clear signal of a policy turn. Analysts believe this shift may reshape market expectations for the interest-rate path over the next 12 to 18 months.
Will Trump’s pressure shake the Fed’s independence
The Fed’s independence has long been a cornerstone of the US monetary policy framework. However, the political environment in 2026 poses a severe challenge to this principle.
In an interview with NBC’s “Meet the Press” ahead of the FOMC meeting, Trump explicitly said: “There’s no reason to raise rates. If they raise rates, it’s to stifle our success. We should actually be cutting rates now.” These remarks openly set the White House and the Fed’s policies against each other.
The backdrop to the pressure is intriguing. On one hand, rate-hike expectations dragged US stocks lower sharply on the 5th, and Trump attempted to reverse market sentiment through public comments. On the other hand, Wosch is a nominee appointed by Trump personally, and this special circumstance has led to increased concerns about whether the Fed can maintain independent decision-making.
Former Fed Chair Powell had warned before leaving office that escalating political pressure could damage the public’s trust in central bank decisions. In the current environment, this warning looks especially timely.
It should be noted that before taking office, Wosch’s public stance overall leaned hawkish. He criticized major flaws in the Fed’s hesitation to cut rates, and he also suggested establishing a policy coordination mechanism with the Treasury Department. Whether, after taking office, he can chart an independent path between the hawkish consensus and White House pressure will be one of the key focal points of this FOMC meeting.
How the CPI vs. PCE divergence affects policy judgment
The April data reveals an issue that is easy to overlook but crucial: the two core inflation gauges in the US are diverging.
The Fed traditionally focuses more on the core PCE measure. It has broader coverage and can better reflect consumers’ substitution behavior under changing prices. In April, core PCE rose to 3.3% year-over-year, while core CPI rose to 2.8% year-over-year—an absolute gap of 0.5 percentage points. This divergence presents policymakers with two practical problems:
- First, it weakens a unified market understanding of inflation conditions. When core CPI points to a relatively milder inflation picture while core PCE points to tighter price pressure, expectations formed by different market participants based on different indicators may diverge.
- Second, it increases the difficulty of policy communication. Wosch has already publicly said that core PCE is a “rough estimate,” implying that the Fed may push for more robust inflation indicators such as trimmed-mean PCE. This statement alone indicates that the Fed is willing to reassess the suitability of the current inflation measurement framework.
With the policy interest rate in the 3.50% - 3.75% range, choosing which inflation indicator to reference and which framework to use to judge the inflation trend will directly affect the Fed’s policy direction. If a looser measurement standard is adopted (such as core CPI), the rate-hike logic will weaken; if core PCE is kept as the anchor, the pressure to hike would be more pronounced.
Why the crypto market is watching the Fed’s rate signals
For the crypto asset market, the Fed’s rate decision has never been a distant macro variable.
The core logic is that the valuation of risk assets is highly sensitive to risk-free interest rates. When expectations for rate hikes intensify, the appeal of dollar-denominated assets increases; capital tends to flow from risk assets like Bitcoin and Ethereum into traditional safe-haven assets, putting pressure on crypto prices. Conversely, a rate-cut cycle creates a more favorable environment for crypto by releasing liquidity.
Against the backdrop of rising Fed rate-hike expectations, the crypto market is facing a more complex macro environment. CME FedWatch data shows that the probability of rate cuts this year has fallen significantly, and the probability of a rate hike in July has risen to double digits. This shift in the expectation structure has already been partially reflected in changes in the crypto market’s risk appetite.
However, market structure is also undergoing subtle changes. Some analysts note that ongoing net inflows into Bitcoin ETFs are changing how crypto assets react to Fed policy—crypto markets are shifting from reacting passively to, to some extent, front-running expectations.
Even so, the policy signals released at the June FOMC meeting will remain a key variable for the crypto market. If the policy statement deletes the “easing bias” wording or the dot plot shows expectations of rate hikes, the market’s assumptions about full-year liquidity will face further revisions.
FAQ
Q: What is the most likely outcome of the Fed’s June FOMC meeting?
Based on CME FedWatch data, the market expects the Fed to keep rates unchanged at 3.50% - 3.75% with a probability of about 97%, and the probability of a rate cut is only about 3%. The market broadly expects the meeting will hold rates steady, but changes in the wording of the policy statement will become the more important signal to watch.
Q: Could the Fed really raise rates within 2026?
Market data shows this possibility is rising. CME FedWatch indicates that the probability of a 25-basis-point rate hike in July has reached about 15.5%. Institutions such as Goldman Sachs have canceled their view of rate cuts for 2026, pushing the rate-cut expectations out to 2027. If inflation data continues to come in above expectations, rate hikes later this year cannot be ruled out.
Q: Will Trump pressuring Wosch to cut rates affect Fed decision-making?
The Fed has statutory independence, and Wosch’s term is protected by institutional arrangements. But Trump’s public pressure has weakened market confidence that the central bank’s decisions are insulated from political interference. Whether Wosch can chart an independent course between the hawkish consensus and White House pressure will be an important highlight of the FOMC meeting.
Q: Which better reflects the US’s real inflation situation, CPI or PCE?
The Fed focuses more on PCE. In April, core PCE was 3.3% and core CPI was 2.8%, with a rare divergence between the two. Wosch has proposed using robust inflation indicators such as trimmed-mean PCE, showing that the Fed is reassessing the applicability of its current inflation measurement framework.
Q: How will changes in the Fed’s policy signals affect the crypto market?
When Fed expectations for rate hikes heat up, it typically means the risk-free rate rises, dollar-denominated assets become more attractive, and capital may flow out of risk assets such as Bitcoin and Ethereum. If the June FOMC meeting releases clear hawkish signals, the crypto market’s risk appetite may face a period of adjustment.
