On April 30, what was supposed to be a day filled with a stream of dull macro data flashing across screens turned into a cold splash of water on the market's "rate cut dream" due to the March PCE price index released by the U.S. Department of Commerce: the annual rate surged from 2.8% in February to 3.5%, setting a nearly three-year high; the monthly rate accelerated from 0.4% to 0.7%, marking the fastest increase since May 2023. Officials pinpointed that the rapid rise in gasoline prices was one of the main driving forces. Almost overnight, from traders to asset managers, the previously shared consensus on "when the rate cuts will start this year" was punctured by this set of numbers, replaced by a silent calculation of "how long will high rates be maintained."

On the same day, Kevin Hassett, director of the National Economic Council at the White House, unusually aimed his criticism at the Federal Reserve. He publicly expressed disappointment with Chairman Powell's recent remarks and emphasized that the Department of Justice had made concessions on related issues; however, he chose to evade the question of whether Powell had communicated with the White House beforehand. This series of statements heightened the already tense nerves around policy: the curve on interest rate futures began to tilt upwards, with investors increasing their expectations for the probability of the Fed raising rates before the end of 2026, and the weight of rate cut scenarios was quickly compressed. More intuitively, on the prediction market Polymarket, the probability of the contract "Fed does not cut rates 25 basis points zero times in 2026" jumped to about 58%, rising by 9 percentage points within 24 hours, with cumulative transactions approaching 22 million dollars — the narrative had quietly rewritten from "when will rates be cut" to "will there be no cuts at all, or even hikes."

White House Fires on the Fed: Hassett Publicly Names Powell

While the market was still digesting the higher-than-expected PCE data, the White House struck first. Kevin Hassett, director of the National Economic Council, publicly named Federal Reserve Chairman Jerome Powell, stating that he was "disappointed" with Powell's related remarks and added that he hoped Powell understood that the Department of Justice had made concessions on related issues. For Washington, which has always emphasized the "independence" of the central bank, such emotionally charged comments are uncommon and resemble a direct reprimand: the executive branch believes it has stepped back on certain sensitive issues, while the Fed continues to send out tight policy signals. More intriguingly, when asked whether Powell had informed the White House beforehand about these positions, Hassett declined to answer, transforming the originally manageable question of "whether there was communication" and "to what extent there was communication" into the most glaring question mark in their relationship.

Hassett's words connect to the political narrative of the Justice Department's "concessions" and the economic reality of rising inflation and high rates. Against the backdrop of gasoline driving the PCE annual rate to 3.5% and the monthly rate to 0.7%, high rates are transmitting pressure layer by layer to financing costs, employment, and growth expectations, making it difficult for the White House to remain indifferent. Choosing to publicly pressure the Fed at this moment sends a signal: the executive branch is unwilling to solely bear the burden of a "prolonged tight monetary environment" and hopes to force the Fed to leave more room for maneuvering in both wording and path through public discourse. However, from the market's perspective, this public confrontation is not interpreted as "rate cuts are closer," but rather seen as evidence of increasing political pressure on the central bank — as inflation data rises and political noise escalates, the more the Fed emphasizes independence, the harder it becomes to easily shift towards easing. The scenarios in rate futures and prediction markets began to be repriced regarding “no rate cuts before 2026,” and Hassett's “disappointment” ultimately reflected yet another revision of expectations on traders' screens.

PCE Soars to 3.5%: Gasoline Ignites Three-Year High Inflation

If Hassett's "disappointment" is merely political noise, then the March PCE data released by the U.S. Department of Commerce on April 30 is the cold, hard number nailed to the screen. The PCE price index for March shot up to an annual rate of 3.5%, leaping from February's 2.8%, directly reaching a nearly three-year high, declaring that inflation has not been sliding along the previously imagined "mild descent curve," but is instead rising again from a high level. At the same time, the monthly rate jumped from 0.4% in February to 0.7%, the fastest monthly increase since May 2023; the change in pace is more striking than the level — it tells everyone that prices are not "cooling down," but are accelerating once more.

The official explanation pointed directly at energy: the rapid increase in gasoline prices was one of the main drivers pushing up the March PCE. The bills at gas stations are merely the result; the root lies in distant supply chains — the ongoing Middle East conflict, especially involving Iran, is disrupting global oil and energy trade, tightening the already strained energy market further. The U.S. PCE is just the first thermometer ignited by gasoline; in the transmission chain of rising energy prices, transportation and production costs are elevated layer upon layer, ultimately pressing down on end consumers at higher tag prices.

In the face of this structurally rising inflation, concerns about "growth being nibbled away bit by bit" began to arise. Under the dual pressure of energy and prices, corporate profit margins are squeezed, and real purchasing power for residents is weakened, making the outlook for U.S. economic growth no longer simply a matter of "high rates dragging down," but more like being sandwiched between costs and demand. The market has revived a term that was once seen as a textbook concept — "stagflation": inflation rising, growth under pressure. Moreover, the U.S. is not alone. The European Central Bank has already warned that the Iran-related war disrupts global energy flows, bringing dual risks of rising inflation and economic downturn; the pricing for its June rate hike has dropped from a previously more aggressive path to around 22 basis points, showing that decision-makers are also caught between inflation and recession. The 3.5% PCE is not just a U.S. number, but pushes the shadow of a global environment of "sustained high rates and rising stagflation risk" closer.

Rate Cut Dream Shattered: Rate Futures and Polymarket Turn

After the PCE data was released, the first to "reverse course" were not the Federal Reserve officials but the interest rate futures market. Traders who had previously been deliberating on "when to start rate cuts this year and whether to cut several times consecutively" began to focus on another number — the probability of another rate hike before the end of 2026. The latest pricing shows a slight rebound in this probability, equivalent to dragging the previously laid-out rate cut path back inch by inch: what was originally considered a given premise of "there will be a cut, it's just a matter of time" was quietly rewritten to "there may not be a cut at all, or there may even need to be another hike." The mainstream narrative then shifted from discussing how many cuts would happen and how quickly they would occur, to questioning sharper issues — in a world of rising inflation, does the Fed still have the qualifications to talk about easing?

To see the extreme form of this sentiment, one must look at Polymarket. On this prediction market, regarded by traders as a "collective probability evaluator," the contract "Fed cuts rates by 25 basis points zero times in 2026" saw its price rise sharply, with the latest implied probability reaching about 58%, surging 9 percentage points in a single day, and cumulative trading volume approaching 22 million dollars. By design, such contracts were originally intended to hedge tail scenarios — a scenario of completely not cutting rates, once almost seen as "irrational worry," is now being bought with nearly a 60% win probability. The trading logic has likewise flipped: it is no longer a few people using small positions to buy insurance against "high rates lasting longer," but rather an increasing amount of capital treating "keeping rates completely steady" as the baseline assumption, and then discussing whether there will be additional hikes, which are a much harsher possibility.

When interest rate futures and prediction markets simultaneously reverse course, the underlying formula for global capital allocation is forced to rewrite. Under the expectation that "high rates may last longer," long-term rates face pressure to rise again, discount rates go up, and every ounce of premium in stock market valuations must be recalibrated; long-duration bonds shift from "safety cushions" to the most sensitive bets on rates, while highly volatile crypto assets bear the amplified shocks at the end of this chain. In an environment of rising high rate expectations and increasing uncertainty, global stock markets, bond markets, and risk assets, including crypto, generally face valuation resets and heightened volatility: funds that previously bet on a liquidity rebound begin to withdraw their chips, while short-term interest income becomes attractive again. The real danger lies in the market being forced in a short time frame to switch from "waiting for the rain" to "preparing to bask in the sun for a few more years," and this adjustment process in posture is itself a new price storm.

European Central Bank at a Crossroads: War, Energy, and Hesitation on Rate Hikes

As the U.S. was forced to embrace the narrative of "high rates lasting longer" due to a piece of PCE data, the European Central Bank faced a different, gloomier predicament. The war involving Iran continues to disrupt global energy flows, and the ECB has unusually named and warned in its official statements: the uncertainties in the energy supply chain are raising inflationary risks while exacerbating economic downturn risks. For an economy that has yet to truly emerge from the last round of stagnation, this means that every fluctuation in energy prices could simultaneously ring the alarm for "price control failure" and "deeper recession."

This dual pressure directly impacts rate pricing. Traders who had bet on "more aggressive rate hikes" just weeks ago are now pulling back their aggressive expectations for the ECB's June actions; the money market is currently only agreeing to a rate hike of about 22 basis points — not that they won't raise, but they are unwilling to raise too much. Decision-makers know that the transmission of rising energy prices to the price level is only a matter of time, but they also understand that tightening too quickly will worsen the already weak growth, forcing policy stances to linger in a gray area between raising and not raising: needing to send signals to inflation that "I care," while not daring to completely push the economy off the cliff.

The contrast between the two sides of the Atlantic is therefore particularly stark. Under the combined pressures of PCE and the White House, the probability of rate hikes in the U.S. has slightly rebounded, using a stronger rate curve to hedge against rising inflation; meanwhile, the ECB is retreating step by step in the face of energy price shocks, willing to only price in moderate rate hikes. This divergence itself reinforces the same larger background — the Middle Eastern conflict is raising energy costs, dragging both the U.S. and Europe into a resonant zone where "prices remain high while growth becomes increasingly fragile." At the market level, global capital is forced to prepare for a more difficult-to-price scenario: not merely an inflation problem for a single economy, but a potential repricing of "stagflation risks" that could span multiple major economies, from interest rate swaps to stock and bond valuations, and even to the risk premiums of crypto assets, relative prices among major assets are slowly shifting around this new world line.

What Happens to Global Assets and Crypto Markets Under High Rate Shadows

With the March PCE annual rate raised to 3.5% and the monthly rate soaring to 0.7%, alongside the skyrocketing gasoline prices, the scenario of "high rates lasting longer" has shifted from theoretical deduction to an imminent baseline assumption. The market sees the probability of rate hikes before 2026 rebounding in interest rate futures and rate cut expectations retreating, while hearing that the contract probability on Polymarket for "no rate cuts in 2026" has risen to about 58%, with transactions nearing 22 million dollars; meanwhile, the Director of the White House National Economic Council expressed disappointment with Powell's remarks face-to-face, but this did not yield any concessions from the Fed in its anti-inflation stance. On the other side of the Atlantic, the ECB's pricing for a mere 22 basis point rate hike in June appears hesitant under the backdrop of disruptions in energy flows due to the Iran-related war. The political desire to alleviate the pain of high rates confronts the Fed's hesitance to loosen its grip due to inflation and war. This misalignment points towards the same conclusion: the world is sliding towards a "new normal of higher rates, lasting longer, and rising stagflation risks."

In such a world, the instinctive reaction of capital is to flee from all long-duration, story-heavy assets, shifting towards short-duration, high liquidity, and high cash flow visibility targets: in the stock market, high-valuation growth sectors face the first pressure; in the bond market, even a slight rise in long-end yields is enough to trigger a round of duration reduction; in the crypto market, the same logic is amplified — mainstream assets with better liquidity and those highly tied to macro narratives may only be "relatively safe" amid high volatility, while tokens dependent on long-term narratives and with inherently thin on-chain liquidity are more susceptible to being brutally smashed through in every expectation correction. What will truly determine the curve shapes are no longer surprises from a single data point, but rather several slow variables: whether subsequent PCE and other inflation indicators can decline under the pressure of high energy costs; whether oil and gas supplies will face new breakpoints due to the Middle Eastern situation; and whether the Fed and ECB's wording, dot plots, and market forecast paths will continue to shift towards "longer periods of high rates" in upcoming meetings. For all risk assets — including crypto assets — these three clues will be the price anchors worth closely monitoring for some time.

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