US Inflation Accelerates to 3.8%, Raising Odds of Fed Rate Hike
Consumer inflation in the US hit a high since 2023 (3.8% YoY) in April, driven by rising gasoline and food prices. Markets are pricing in a potential Fed rate hike next year, with Treasury yields moving higher.
Markets were shaken by the April figure of 3.8%. This value not only exceeded the consensus forecast of 3.5%, but it broke the narrative that the "inflation pause" earlier this year was temporary. In fact, right now, within the Fed's offices, there is a growing realization that the neutral rate (R-star) was misestimated. In the closed models of the Board of Governors, to which senior economists at the Federal Reserve Bank of New York have access, the scenario of a 25-basis-point rate hike in September 2026 no longer looks alarmist. It is becoming the baseline, because the effect of the Trump administration's trade tariffs is manifesting with a six-month lag right now.
The Gist: What's Really Happening
We are witnessing not a run-of-the-mill economic heating cycle, but a structural supply shift. In the labor market, despite the Fed's actions, there is still a gap between labor demand and supply of 2.3 million people. Inflation at 3.8% is not monetary pumping; it is a supply-side price shock amplified by geopolitics and fiscal policy. The tightening of the tanker shipping market in the Persian Gulf and the effective blockade of the Strait of Hormuz added a $22 premium to the global barrel price, while the relocation of production from China back to the US due to tariffs increased the cost of durable goods by 12–15%. Jerome Powell is now in a trap. If at Jackson Hole in late August he announces a rate hike to 5.75%, he will crash the commercial real estate market, which faces a $1.4 trillion refinancing peak in September. If he doesn't hike, inflation expectations will become unanchored from the 2% target forever.
Timeline and Context
We need to rewind to understand the error in current assessments. In December 2025, the Fed gave a dovish forecast, indicating three rate cuts in 2026. However, in February 2026, the Producer Price Index (PPI) unexpectedly jumped 0.7% month-over-month. The March Federal Open Market Committee (FOMC) meeting passed in silent horror: an internal memo prepared by economists at the Atlanta Fed indicated that inflation in the services sector excluding housing (supercore) accelerated to 4.9% year-over-year. That is the figure Powell called "the most important indicator." The April jump to 3.8% in headline CPI was merely formal confirmation for the market of what Wall Street professionals knew a month earlier from the employment report, where average hourly earnings unexpectedly accelerated to 0.5% month-over-month. Now, on May 13, 2026, the federal funds futures market shows a 68% probability of a rate hike to 5.50% by the November meeting.
Winners and Losers
Winners. First, holders of short-term Treasury Inflation-Protected Securities (TIPS) and large banks like JPMorgan Chase and Bank of America. Their net interest income is growing faster than loan loss provisions. Specifically, Jamie Dimon, in early May at a closed meeting with analysts, increased the bank's hedge position for rising rates by $200 billion. Second, commodity traders, particularly Glencore, which controls logistics chains bypassing Hormuz.
Losers. Pension funds overloaded with long-term Treasuries yielding 4.0%, now trading at an 18–22% discount to par. The unprofitable high-tech sector. The covenant-lite unsecured debt index has already started to decline, losing 7% in capitalization over the past two weeks. And the main victim: the US mortgage holder. The 30-year mortgage rate has already crossed the psychological threshold of 9.25%, and we are on the verge of the worst decline in existing home sales since 2010.
What the Media Isn't Saying
Insider view: the true goal of the Bank of Canada. While everyone watches the Fed, quietly and without much noise, central banks of commodity-rich countries are preparing a coordinated diversification of dollar reserves. This is not about geopolitics, but pure arbitrage. Bank of Canada Governor Tiff Macklem held an emergency conference call on May 5 with the heads of the central banks of Australia and Norway.
What are most missing? The world is preparing for a scenario where the Fed is forced into a recession to break the back of demand. If inflation remains structural and rates rise above 6%, why hold reserves in US Treasuries that are depreciating faster than assets in Norwegian kroner or Australian dollars? This is a silent revolt of the safe haven. They are selling UST under the guise of "portfolio rebalancing," but in reality, they are creating the first real alternative to the risk-free dollar in 30 years for internal settlements in energy and rare earth metals.
The second overlooked point: rental housing data. The BLS uses rental equivalents with a 9–12 month lag. In real time, according to Zillow and a private index from Blackstone Group, US rents have been declining 1.2% year-over-year since August 2025. Yet official statistics still show this component rising 4.1%. This means that right now, real inflation is understated due to slowing rents, but once this data catches up to the market, structural services inflation will fall. But the Fed doesn't see this in its models, using outdated data. They risk overtightening by acting on hot data when cooling has already occurred.
Forecast: Next 30 Days and 90 Days
Next 30 days (by mid-June 2026). The two-year yield will break above 5.1%. During his semiannual testimony to Congress on June 18, Jerome Powell will be forced to shift rhetoric from "patience" to "active readiness to act." The stock market (S&P 500) will fall below 5,000 points due to a reassessment of discounted future cash flows for tech giants. Shares of big data and AI developers, accustomed to near-free funding, will fall particularly aggressively. Specifically, Nvidia will correct another 12–14% from current levels, as a P/E ratio above 30 with a risk-free rate of 5.5% is mathematically untenable for a long-term portfolio.
Next 90 days (by mid-August 2026). If core CPI does not fall to 3.2%, the Fed will hold an emergency meeting and raise rates by 25 bps in August, not waiting for September. The US office real estate crisis will peak: a default is expected on a $38 billion commercial mortgage portfolio consolidated on the balance sheets of Texas and Florida regional banks. This will not repeat the Silicon Valley Bank events, but will create a "bear hug" effect for the banking sector. The VIX volatility index will settle above 32. Capital outflows from emerging markets will accelerate, pushing the DXY dollar index to 112. The world will enter a "late cycle" phase with high turbulence, where the main asset will be not gold or bitcoin, but live cash in dollars in demand deposits.
— Editorial Team
