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The Federal Reserve keeps interest rates unchanged but internal disagreements intensify, is rate hike restart possible?

In the early morning of April 30th, the Federal Reserve announced that interest rates would remain at 3.5%-3.75%, marking the third consecutive pause. However, this meeting saw the largest internal disagreement since 1992, with an 8-4 voting result. Three regional Fed presidents opposed the statement that retained a bias toward rate cuts, while one governor supported an immediate rate cut. The possibility of a rate hike in the short term is increasing, but the probability of hikes for the year remains lower than that of cuts. The market is shifting from “single-mindedly betting on rate cuts” to a “two-way game.” So, how likely is a Fed rate hike? What impact will it have on financial markets? Let’s hear from Xiao Cai Shen.

I. Analysis of the likelihood of a Fed rate hike

1. Rate hikes are no longer a “zero-probability event”

Goldman Sachs data shows that the market has priced in a 45% chance of a rate hike in 2026 (up from just 12% before the war), and according to the CME FedWatch tool, the implied probability of a rate hike in June 2026 has risen to 64%. Although mainstream institutions like Goldman Sachs still forecast two rate cuts within the year, the symmetry of the policy path is strengthening, meaning “the likelihood of rate hikes and cuts being roughly equal” is an underestimated tail risk.

2. Three major conditions triggering a rate hike

- Oil prices remain above $100 per barrel for over three months;
- Core inflation has been above 3.2% for two consecutive months;
- The labor market is unexpectedly strong, with the unemployment rate falling below 3.6%.

Currently, the first two conditions are partially met, with WTI crude oil surpassing the $100 mark.

3. Policy signal release path

The Fed is more likely to signal hawkish intentions through the “dot plot” in the Summary of Economic Projections (SEP), indicating some members expect rates to be higher at the end of the year, rather than explicitly mentioning rate hikes in the statement.

4. New Chair Kevin Woor’s stance is neutral to hawkish

Although his nomination hearing emphasized balance sheet reduction and policy framework reform, stressing “independence” and “data dependence,” he did not explicitly support rate hikes. His policy style leans toward reducing forward guidance and increasing flexibility, with future decisions highly dependent on inflation and oil price trends.

5. Summary: Currently, whether betting on the market or mainstream views, the probability of rate cuts this year remains higher than that of hikes. However, close attention should be paid to the Iran-U.S. situation and whether oil prices, affected by it, will stay above $100.

II. Impact on financial markets

1. Gold: Persistent low interest rates, expected to mainly fluctuate downward

- Short-term downward momentum:
On April 30, international gold prices recently fell from around $4,800 to about $4,590, driven by escalating Middle East tensions and energy inflation concerns, keeping gold under pressure.

- Long-term suppression factors:
A strong US dollar index (USD/CNY 6.8282) diminishes gold’s attractiveness;
Expectations of “higher interest rates for longer” increase the opportunity cost of holding gold;
Historical data shows a significant negative correlation between gold and the dollar index.

2. Stock market: Resilient, led by tech stocks rebound

- Driving logic:
Market expects interest rates to be near peak, with the “rate peak” narrative dominating sentiment;
Large-cap tech companies’ earnings beat expectations (72% of Q1 profits exceeded forecasts), supporting valuations;
Despite internal disagreements at the Fed, no systemic sell-off has occurred, and risk appetite remains stable.

Amid the uncertain Iran-U.S. situation and high inflation expectations, US stocks have become the only safe haven, repeatedly hitting new highs, with short-term upside expected.

3. Cryptocurrency: Liquidity expectations dominate, short-term decline but no collapse

- Key dynamics:
“Whales” increased holdings: Over the past week, wallets holding more than 1,000 BTC accumulated over $4 billion worth of Bitcoin, the largest buy-in since November, indicating bottom support;
- Institutional warning:
Standard Chartered warns that if the Fed maintains high interest rates until 2027, Bitcoin could drop to $50k;
- Liquidity risk:
The market remains in a “low liquidity + high volatility” state, with daily swings exceeding 5% frequently.

Summary: Under the uncertain Iran-U.S. situation, high inflation expectations, and unclear Fed policies, gold and Bitcoin are likely to remain under pressure. The stock market may become the only safe haven, worth close attention! Wishing everyone daily prosperity!