The Federal Reserve’s next move is supposed to be the one thing markets agree on before it happens. Right now, they very much do not.
Options traders are split on whether the Fed will cut or hike interest rates over the coming months. The federal funds rate sits at 3.50%-3.75% after a string of holds, and while there’s near-universal consensus that the June 16-17 FOMC meeting will keep things unchanged, with market predictions showing over 99% probability, the debate over what comes after is where things get interesting.
The Fed’s own house is divided
The April 29, 2026 FOMC meeting produced an 8-4 vote split, with three officials dissenting against the inclusion of easing bias language. New Fed Chair Kevin Warsh oversaw his first decision in June, inheriting a committee that’s clearly torn between two competing narratives. On one side: inflation that stubbornly refuses to fall to the 2% target. On the other: the question of whether the current rate level is already restrictive enough to eventually get there without further tightening.
The May employment data threw gasoline on this debate. Strong jobs numbers led traders to increase the odds of a rate hike by year-end 2026, with some futures markets now fully pricing in at least one hike. That’s a meaningful shift from earlier in the year, when the consensus leaned toward the next move being a cut.
