ToplineTraders anticipate an interest rate hike from the Federal Reserve in 2026 as odds rose above 50% for the first time on Friday, according to the CME Group’s FedWatch tool, fueled by growing fears of rising inflation as a result of the Iran war. Recent forecasts point to a surge in consumer prices, while some economists have warned of a possible recession.Getty ImagesKey FactsFutures market traders edged the probability of an interest rate hike by the end of the year to as high as 53%, the first time odds surpassed 50%, according to the CME Group.The Federal Reserve last voted to increase interest rates in July 2023, raising its benchmark rate to between 5.25% and 5.5%, and has since voted to hold or lower rates.Odds of an interest rate hike are highest during the Fed’s October meeting at 38.9%, followed by 38.8% in December and 31.3% in September, during which traders have placed 3.4% odds of a half-point increase.ContraBetting markets don’t expect an interest rate hike anytime soon: Polymarket placed 26% odds for a hike in 2026, and Kalshi placed 41% odds for a rate hike before July 2027.What Have Fed Officials Said About Interest Rate Hikes?After the Fed voted last week to hold interest rates between 3.5% and 3.75%, the central bank indicated it still expected one interest rate cut this year and another reduction in 2027. Federal Reserve Bank of Chicago President Austan Goolsbee, who will not vote on rate decisions this year, told CNBC earlier this week he could “see circumstances” for an interest rate hike if inflation was “getting out of control.” Goolsbee noted the Fed could support multiple rate cuts for the year if inflation “behaves.” That came days after Fed Chair Jerome Powell said a “vast majority” of central bank officials didn’t have an interest rate hike in mind, adding it was “too soon” to gauge the impact of the Iran war on inflation and economic growth. But if inflation doesn’t improve,”then you won’t see a rate cut,” Powell said. Even before the conflict, “several” members of the Federal Open Market Committee indicated in January rate hikes “could be appropriate” if inflation remained at “above-target” levels, according to minutes from the meeting. Participants in the meeting said progress toward the Fed’s 2% inflation goal could be “slower and more uneven” than expected, and there was a notable risk that inflation would remain above the target rate. How High Could Inflation Go?The Organization for Economic Cooperation and Development, a global economic policy group, said earlier this week that U.S. inflation may rise to 4.2% in 2026. That’s a sharp uptick from its previous forecast of 2.8% and the Fed’s estimate of 2.7% released last week. The group cited uncertainty for the “breadth and duration” of the Iran war, adding a prolonged period of higher energy prices would “add markedly” to business costs and raise consumer prices. In its forecast, the group also said it anticipates the Fed holding interest rates steady through 2027.Further ReadingForbes‘Several’ Fed Officials Say Interest Rate Hike May Be Needed, Minutes ShowBy Ty RoushForbesWill The U.S. Hit A Recession? Moody’s Warns Of ‘Real Threat’ Amid Iran WarBy Ty Roush