Persistent inflation, with May 2026 CPI rising 0.5% month-over-month and 4.2% year-over-year—the highest since 2023—driven largely by energy prices amid geopolitical shocks, has shifted trader sentiment toward the possibility of Federal Reserve rate hikes. The federal funds rate remains at 3.50%-3.75%, and while the June 16-17 FOMC meeting is expected to hold policy steady with near-98% implied probability, futures markets now assign roughly 66% odds of at least one 25 basis point hike by year-end. Strong May employment data and recent FOMC minutes highlighting risks of further firming if price pressures persist have reinforced this view, contrasting with earlier expectations of cuts. Key upcoming catalysts include the July 14 CPI release and subsequent FOMC meetings through December.