The divisions within the Federal Reserve are obvious, with market predictions leaning towards a hawkish tone. Traders are betting that the probability of a rate hike within the year is over 50%.

Although there is still a clear division within the Federal Reserve regarding the future path of interest rates, overall, market traders tend to believe that the Fed is likely to further raise rates this year. The latest data from the prediction market platform Kalshi shows that as of now, traders expect a probability of around 54% for the Fed to raise rates before the end of this year, slightly down from 56% the previous day. At the same time, the market predicts a probability of around 62% for the Fed to raise rates before July 2027, and a probability close to 80% for a rate hike before 2028. Kalshi has introduced multiple prediction contracts for the next Fed rate hike timing, betting on whether there will be rate hikes before the end of this year, before July 2027, and before 2028, with each contract set to settle when the corresponding conditions are met. Market expectations align with the latest minutes of the Fed's June monetary policy meeting. The minutes show that at the first policy meeting chaired by the new Chair, Kevin Warsh, officials discussed the future path of interest rates but did not reach a consensus. Many officials at the meeting believe that maintaining the federal funds rate in the current target range of 3.50% to 3.75% or slightly below by the end of this year would be a more appropriate policy choice. However, many others believe that the rate should be higher by the end of the year, reflecting significant differences within the decision-making body regarding future inflation trends and monetary policy prospects. Analysts believe that the internal division within the Federal Reserve is mainly due to the pressure of high inflation in the U.S. economy and the continued escalation of geopolitical risks in the Middle East. Data shows that the preferred inflation gauge for the Fed, the Personal Consumption Expenditures (PCE) price index, rose by 4.1% year-on-year in May, the highest level since April 2023, further reinforcing the concerns of some officials about inflation risks. Meanwhile, another prediction market on "how many times the Fed will cut rates this year" by Kalshi shows that traders expect a probability of around 76% that the Fed will not cut rates this year. It is worth noting that this probability quickly rose from 68% to 77% on June 16 (the first day Warsh chaired the Fed policy meeting) and has seen relatively limited changes in market expectations since then, indicating that investors overall still believe that the Fed is likely to maintain a hawkish policy stance in the short term.