Recent inflation data and geopolitical tensions have become the dominant drivers of trader sentiment around potential Federal Reserve rate hikes in 2026. March CPI accelerated to 3.3% year-over-year, fueled largely by energy prices, while core measures also firmed, prompting markets to price in roughly a 37% chance of at least one hike by year-end—up sharply from near-zero odds earlier in the spring. The FOMC held the federal funds target range steady at 3.50%-3.75% in its April 29 meeting amid eight dissents and Chair Powell’s emphasis on upside inflation risks. With Kevin Warsh slated to assume the chair role later this month and the June 16-17 FOMC meeting approaching, attention now turns to the May CPI release and labor-market data for signals on whether persistent price pressures could outweigh any softening in employment and shift the policy path from cuts to hikes.