The market is starting to price in a 50% probability of an October rate hike, completely erasing expectations of a rate cut and bringing the likelihood of at least one rate hike this year closer to reality. The main logic behind market pricing: 1. It's less likely that the next FOMC rate hike will happen immediately; the probability of at least one hike by October or this year has significantly increased. Today, media reports cite market-implied probabilities ranging from approximately 40% to 60%, with the difference mainly stemming from variations in timeframes and terminology. 2. In recent days, after the Middle East conflict damaged oil and gas infrastructure, crude oil prices surged to around $119 and are still fluctuating around $100. The market is concerned about a resurgence of imported inflation, with costs in gasoline, transportation, chemicals, and shipping being passed down downstream. 3. This round of inflation wasn't fully suppressed to begin with, making oil price shocks particularly prone to altering its trajectory. US February CPI rose 2.4% year-on-year, January PCE rose 2.8% year-on-year, core PCE rose 3.1% year-on-year, and February PPI rose 0.7% month-on-month and 3.4% year-on-year. In other words, inflation data was already fragile before the oil price surge, disproving the market's previous logic of a smooth rate cut. 4. The economy is not so weak that the Fed must intervene. The Fed's statement on March 18th indicated that the economy was still expanding steadily, the unemployment rate had not changed significantly, inflation remained high, and the impact of the Middle East situation on the US economy remained uncertain. During the same period, the SEP revised its 2026 median GDP growth forecast upward from 2.3% to 2.4%, maintained the unemployment rate at 4.4%, but raised its 2026 PCE and core PCE forecasts to 2.7%; the median federal funds rate remained at 3.4%, suggesting a baseline scenario more like a single rate cut than rapid easing. The February non-farm payrolls decrease of 92,000 and the unemployment rate of 4.4% also indicate that the economy is not so bad that it would force the Fed to immediately turn dovish. Therefore, the market's pricing strategy is actually quite clear: first, remove the expectation of a rate cut; then, factor in a longer period of high interest rates; and finally, add a small portion of the probability of a rate hike this year. Essentially, this is a trade on rising stagflation risk, not a trade on renewed economic overheating. The increased probability of interest rate hikes we're seeing now is largely a hedge against a scenario of runaway oil prices. If the energy shock eases, this pricing of interest rate hikes will also drop rapidly.