Bond traders delivered a stunning reversal on Federal Reserve expectations, with multiple rate markets signaling the next policy move will be upward rather than downward. JPMorgan expects the Fed to hold rates steady at 3.5%-3.75% this year and raise by 25 basis points in the third quarter of 2027, reflecting a complete about-face from earlier cut expectations.

The markets are pricing this shift aggressively. The April 2027 "Above 0.00%" contract rocketed from 19¢ to 99¢, while the "Above 0.25%" rate jumped from 32¢ to 99¢. Even the "Above 3.00%" contract fell only to 17¢ from 65¢, suggesting traders see meaningful odds of restrictive policy continuing. Energy price spikes amid Middle East conflict are raising Fed concerns about inflation, with the central bank meeting today likely to address these pressures.

The hawkish repricing extends beyond 2027, with inflation expectations also rising. The "At least 3.5%" inflation market climbed to 80¢, up 19¢, as analysts project the Fed will hike rates by 25 basis points in Q3 2027, bringing the upper band back to 4%. This marks a complete reversal from the easing cycle many expected to continue.