Markets shift from expecting Fed rate cuts to a 70% chance of a hike by December amid strong jobs and inflation data.

Investors entered 2026 expecting multiple Federal Reserve rate cuts, but strong May jobs growth and persistent inflation have erased those expectations. The CME FedWatch Tool now shows about a 70% chance of a rate hike by December, marking a sharp reversal in market sentiment. This shift impacts rate-sensitive sectors like utilities, REITs, and semiconductors, which are adjusting to higher borrowing costs. Going forward, every jobs and inflation report will influence Fed policy expectations, with no rate cuts expected soon and the possibility of hikes increasing if data remains strong.