Markets now see the Fed's next move as a potential rate hike as inflation fears mount

Surging energy prices, rising import costs and mounting stagflation concerns are pushing markets to consider that the Federal Reserve's next move could be a rate hike.

Traders in the futures market pushed the probability of a rate increase by the end of 2026 to 52% Friday morning, the first time it has crossed the 50% threshold, according to the CME Group FedWatch tool.

The move comes as global benchmark crude prices topped $110, adding to a series of developments this week signaling that inflation pressures may be building as the Iran war drags on and U.S. tariffs raise costs.

Adding to the inflation concerns, the Bureau of Labor Statistics reported Wednesday that import prices jumped 1.3% in February, the largest monthly increase since March 2022, while export prices rose 1.5%, the biggest gain since May 2022.

At the same time, the Organization for Economic Cooperation and Development sharply raised its forecast for U.S. inflation this year. The global forecasting agency estimates headline prices to rise at a 4.2% rate, far above its prior forecast and well above Fed expectations for 2.7%.