Fed Rate Hike Back on the Table: BofA Says 1-in-3 Odds Are Too Low

The Fed meeting that was supposed to be a snoozer just got interesting. BofA's Mark Cabana appeared on CNBC and dropped the kind of take that makes you put your coffee down: markets are pricing roughly a 1-in-3 probability of a rate hike at the current meeting, which Cabana calls historically unprecedented. In every prior hiking cycle, markets have never priced below 60% probability ahead of an actual hike. So either the market is right and this is a head fake, or it's asleep at the wheel.

The case for actually hiking isn't subtle. New Fed Chair Kevin Warsh has been loudly impatient about inflation, citing 62 consecutive months (yes, five years) since the Fed last hit its inflation target. That's not just a talking point, it's political cover. Warsh didn't own the prior failures, so hiking doesn't make him look like he's reversing himself. It makes him look tough. The Bloomberg podcast crew noted the Senate just gave overwhelming bipartisan support to new tariff legislation, which adds another inflationary layer on top of an already stubborn price environment.

And then there's the geopolitical backdrop, which is doing absolutely nothing to cool things down. Oil prices jumped more than 3.5% to $87.06 a barrel for Brent crude after the US intercepted Iranian ballistic missiles and struck Tehran-backed militias in Iraq. Physical oil prices are reportedly nearing $110 in some markets as the Iran conflict and Ukraine war simultaneously squeeze supply. That's an inflation problem that rate cuts don't fix and rate hikes can't fully cure either, which is exactly the kind of corner a central bank does not want to be painted into.

On YouTube, the CNBC segment also flagged a Ross Gerber warning worth noting: year-to-date the Dow is up 8%, S&P 500 up 9%, and Nasdaq up 10%, and Gerber is urging clients to rebalance, not celebrate. He's flagging a potential 2022 repeat, citing rising inflation and rising interest rates as the combo that historically unwinds levered equity bets. Sentiment isn't panicking yet, but the whispers are getting louder.

The social chatter on this is split: macro traders are leaning into the hike thesis, while equity-focused retail is still betting on cuts and buying every dip. One side is going to look very wrong in the next 48 hours.

If Warsh hikes and the market was only pricing 33%, that's not a soft landing, that's turbulence with nobody holding the barf bag.