On April 16, 2026, Beijing time, the game surrounding the Federal Reserve's interest rate decision is converging into an almost one-sided consensus: holding steady. CME "FedWatch" shows the probability of maintaining the interest rate unchanged at the April meeting is priced in at nearly one hundred percent, while the market has almost simultaneously swept the option of a rate cut before June out of contention. This extreme pricing locks in the "higher for longer" interest rate range as the new baseline, which is also continuously suppressing stock and bond valuations, risk asset preferences, and the liquidity and leverage space in the crypto market. When inflation, economic growth, and geopolitical risks such as Middle Eastern conflicts are intertwined, the nominal "policy rate" may be just a surface variable; what is truly dictating the rhythm is the growing fear of renewed inflation and a collective rebalancing of global funds in U.S. dollar assets.

CME Bets on Almost Zero Rate Cuts: High Rates Written into Baseline Scenario

As of April 16, the probability distribution given by CME "FedWatch" is extremely clear: The probability of a 25 basis point rate increase in April is only about 1.6%, while the probability of maintaining the interest rate is approximately 98.4%; looking to June, The cumulative probability of a 25 basis point rate cut is 0, while the probability of maintaining the current interest rate range is about 98%. From the perspective of futures pricing, the market has almost marginalized both the "rate increase" and "short-term rate cut" scenarios, leaving only a main stage of high rates in a sideways movement.

This pricing structure indicates that the federal funds rate is, for a visible period of one to two quarters, de facto "locked in" at the current high levels by the market. Over the past few years, investors have become accustomed to betting on "turning" or "turning dovish" before each meeting; nowadays, they are more focused on calculating the holding value of high-yield money market instruments, short-term bonds, and high-grade credit assets on a high-rate platform, while the "rate cut game" itself has been postponed or even temporarily abandoned.

On the valuation level, the new normal of high rates has raised the discount rates for all assets: the pressures of discounting growth stocks and long-duration assets in the stock market have intensified, and the upward yield space in the long end of the bond market is being reassessed; for risk assets, a higher risk-free rate raises investors' required returns, lowering the tolerance for uncertain cash flows in the future. The crypto market is operating under multiple constraints: on one hand, rising yields on cash and short-term bonds diminish the motivation to allocate to high-volatility high-risk assets; on the other hand, rising financing costs for leveraged funds significantly worsen the risk-return ratio for high-multiple contracts and long-term staking and lending.

It is important to emphasize that the aforementioned probability data comes from public channels such as Rhythm and Planet Daily, corresponding to a snapshot of the current market. They reflect the sentiment and consensus of the moment, rather than an accurate "script" for the interest rate trajectory throughout 2026. Any annual path projections based on these short-term prices should be regarded as scenario hypotheses rather than definitive conclusions.

Mussallem States to Hold Steady: Resonance of Central Bank Language and Market Expectations

While pricing in the derivatives market leans towards "higher for longer," the public statements by Federal Reserve officials continue to reinforce this stance. Federal Reserve official Mussallem recently stated that interest rates need to be maintained at their current level for a period of time; while this statement did not directly call for "continued rate hikes," it clearly rejected the possibility of a rapid shift towards accommodation. For businesses and households that have already absorbed costs in a high-rate environment, this effectively confirms that the current financing pressures will not dissipate quickly.

This caution is not unique to the Federal Reserve. Swiss National Bank President Schlegel warned that if second-round effects lead to excessively high inflation, central banks should take action early and decisively. Such cross-central bank statements reflect a common anxiety: inflation has already spilled over from energy and commodity sectors into broader wage and service prices; once it "sticks," bringing it back to target ranges may involve geometric increases in costs.

In this context, officials' remarks and CME interest rate futures pricing are forming a mutually reinforcing loop. What the market sees is: on one hand, the futures market is almost no longer assigning weight to short-term rate cuts; on the other hand, policymakers emphasize the necessity of "needing time" and that "we cannot relax too early," both of which suppress the imagination for a rapid easing. Investors are increasingly willing to view the next year as a period of slight adjustments on a high-rate platform, rather than the beginning of a significant policy shift.

At the same time, it is essential to draw the line: the currently available public comments and market data can only support directional judgments about "high rates lasting for a period of time" and cannot be extrapolated to make any specific predictions about the frequency, rhythm, or magnitude of rate cuts throughout 2026. This article will not extend to any unconfirmed or unpublished phrasing to avoid misreading scattered information as "forward guidance."

Middle East Conflict Raises Energy Costs: Policy Constraints Under the Shadow of Inflation

The latest Federal Reserve Beige Book has singled out significantly rising energy costs, which closely relate to the ongoing tensions in the Middle East. Geopolitical risks rapidly transmit through oil and gas prices, raising costs for businesses across transportation, warehousing, and manufacturing. When such pressures are partially passed on to end consumers, inflation expectations become more unstable.

The rise in oil prices is not simply a matter of "adding a couple of dollars to gas prices." For industries relying on long supply chains, higher fuel and shipping costs will cumulatively increase the factory prices of goods, logistics costs, and even retail pricing. Meanwhile, fluctuations in raw material prices will also affect manufacturing profit margins, forcing businesses to hedge via cutting back on investments or adjusting labor, further disturbing growth prospects. In this process, the Federal Reserve must make difficult trade-offs between the "inflation defense line" and the "growth bottom line."

As the "second-round effect" that Schlegel refers to starts to be frequently mentioned, central banks are increasingly willing to bear some sacrifice on the growth front to avoid inflation re-sticking at high levels. If oil price shocks recur, inflation expectations may solidify in the service sector and wage negotiations, leading to a widespread psychological tendency of "prices only rising and never falling." This would diminish the marginal effectiveness of traditional rate hikes, raising the policy costs.

This also exposes the negative feedback mechanism between geopolitical risks and high-rate policies: tensions in the Middle East push up energy prices, triggering inflationary pressures that compel the Federal Reserve to maintain high rates or even extend the high-rate cycle; while high rates, in turn, compress valuations and raise financing costs, undermining the resilience of risk assets and exacerbating concerns about global growth. In this cycle, asset markets, especially crypto assets that are highly sensitive to liquidity, find it challenging to enjoy the valuation expansions that traditional "easing cycles" can provide.

U.S. Treasuries Being Aggressively Bought Overseas: Safe Haven Narrative in High Rate Era

Beyond the game of policy and inflation, the direction of capital voting with its feet is equally clear. According to U.S. Treasury data, as of February 2026, foreign holdings of U.S. Treasuries have risen to approximately $9.49 trillion, a new high, marking a renewed demand from overseas investors for dollar-denominated safe assets. For many sovereign wealth funds, central banks, and large institutions, Treasuries under high rates regain a combination advantage of "nominal yield + risk-hedging attributes."

In a high-rate environment, the real yields on U.S. Treasuries have risen from long-term lows. Coupled with the relative resilience of the U.S. economy and the dollar's core status in the global settlement system, the "anchor" function of U.S. Treasuries in global asset allocation has been reinforced. For foreign exchange reserve managers, in the context of increasing uncertainty and similarly high or even more ambiguous rate paths in other developed economies, increasing holdings of U.S. Treasuries has become a defensive choice that balances returns and liquidity.

Foreign purchases of U.S. Treasuries have a chain effect on the exchange rate of the dollar and global liquidity pricing. On one hand, the continuous buying supports the dollar, making dollar-denominated assets more attractive relative to other currencies; on the other hand, the concentration of funds into low-risk assets such as U.S. Treasuries marginally squeezes the allocation space for emerging markets and high-volatility assets (including crypto assets). For some emerging markets dependent on foreign capital inflows, this could mean pressure on local currency, rising financing costs, and increased volatility in capital inflows.

It is important to note that the $9.49 trillion figure comes from a single source and is better viewed as a trend signal rather than an official conclusion precise to every billion. However, even with minor statistical errors, the high level of overseas holdings itself sufficiently indicates that under the "high rates + uncertainty" combination, global funds are reordering around the dollar and U.S. Treasuries.

U.S. Big Banks' Trading Revenues Surge: Who Profits in the High Rate Quagmire

High rates and high uncertainty often mean greater profits for traditional financial institutions. Public information shows that Bank of America’s Q1 2026 stock trading revenue grew about 30% year-on-year, reaching $2.8 billion. In an environment of frequent repricing of rates and macro expectations, volatility and trading volumes themselves constitute the "nutrient source" for investment banks and trading departments.

As the yield curve is continually redrawn and asset prices are significantly manipulated by policy expectations, inflation data, and geopolitical events, the demand for hedging, rebalancing, and structured trading from institutional clients surges. Large banks leverage their market-making capabilities and channel resources to gain considerable income from spreads, fees, and structured product pricing, while the high-rate platform amplifies profit leverage through net interest income alongside trading business.

In contrast, participants in the crypto market, highly reliant on leverage and liquidity, face a tough situation in the high-rate era. Rising yields on the dollar and short-term bonds reduce some institutions' motivations for "forced chasing yields" in high-volatility assets; simultaneously, rising costs of off-chain financing and blockchain lending make high-leverage strategies more vulnerable during downturns. In this "see-saw" dynamic, traditional finance steadily profits within the existing institutional framework, while capital in the crypto domain must prove its allocation necessity under higher opportunity costs.

It should also be highlighted that Bank of America's data comes from a single source, presenting a typical case of a structural phenomenon—how high rates and high volatility benefit large financial intermediaries—rather than a comprehensive representation of the entire market's profit situation. The performance of different institutions and business lines may be highly differentiated, and this should be kept in mind during interpretation.

Monetary Front Lengthens: Recalibration of Asset Pricing and Crypto Narrative

Putting these clues together, the picture becomes quite clear: the extreme pricing of CME interest rate futures, repeated emphasis by officials on "maintaining high levels," significantly rising energy costs in the Beige Book, concerns about inflation resurgence triggered by the Middle Eastern conflict, record increases in overseas funds buying U.S. Treasuries, and U.S. big banks making a killing amid volatility—all these fragments point to a conclusion—high rates are locked in for longer.

This high-rate main thread is reshaping global capital flows and risk premium structures. The relative advantages of dollar assets in terms of yield and safety are causing global funds to rally back toward U.S. Treasuries and high-grade credits; emerging markets and high-volatility assets face higher funding costs and more stringent return requirements; while crypto assets have shifted from "overflow products of the liquidity boom era" to needing reevaluation within a stringent valuation framework and higher discount rates. For flagship assets like Bitcoin, its "digital gold" narrative may receive some support in risk-hedging dimensions, but it must confront the long-term constraints posed by high rates in the logic of liquidity-driven bull markets.

Looking forward, rather than fixate on "when exactly will the first rate cut happen," it is more prudent to shift focus to the slope of inflation decline, the evolution of the Middle East situation, and the Federal Reserve's speed of response to data:
● If inflation can steadily decline under energy disruptions, the Fed will have space to discuss transitioning from "higher for longer" to "moderate rate cuts";
● If geopolitical risks repeatedly push up energy and safe-haven demand, the high-rate front may be forced to continue extending until inflation expectations are re-anchored.

Throughout this process, investors especially need to distinguish between confirmed facts and views still under verification. The probabilities given by CME, disclosed debt data, and financial report figures comprise the observable state at present and do not equate to a commitment to future paths; various precise numbers around "the probability of no rate cuts for the year" or "sticky oil price shocks" should more properly be viewed as debatable analytical hypotheses rather than directly wagerable "answers." In a world where high rates are written into a long-term baseline, any strategy that overly relies on a single probability number to bet on the annual policy path has become one of the biggest sources of risk.

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