Federal Reserve building at dusk with financial rate curve data in the foreground

A 45% Rate Hike Probability: What the Warsh Fed Means for Expat Portfolios

Q: What is the current Fed funds rate and what would a hike mean?

The Fed held at 3.50-3.75% at the April 29 FOMC meeting. Markets currently price a 45% probability of at least one hike before year-end 2026.

May 17, 2026

One week ago, markets assigned a 1% probability to a US rate hike in 2026. Today that number is 45%. April's core CPI at 2.8%, headline at 3.8% driven 40% by energy costs, and Kevin Warsh's arrival as Fed Chair on 14 May have collectively repriced the entire interest rate outlook. BofA now expects no cuts before mid-2027. The April FOMC vote was 8-4, the most divided since 1992. GBP fell 2.4% against the dollar in four days. If your portfolio was built around rate-cut assumptions from last year, you need to review it now.

Last updated: 17 May 2026

Key Takeaways

Rate hike probability jumped from 1% to 45% in one week as April CPI printed above consensus and Kevin Warsh took the Fed chairmanship - portfolios built on 2025 rate-cut assumptions need an immediate duration review.
The April FOMC vote was 8-4, the most divided since 1992, signalling significant internal disagreement about policy direction.
BofA no longer expects Fed cuts before mid-2027, a full year beyond the prior consensus.
GBP fell 2.4% against the dollar in four trading days following the CPI print; GBP/MYR now stands at approximately 5.27, down from 5.39 in early May.

What Just Happened to Fed Rate Expectations?

In the space of five trading days, US interest rate markets moved from near-zero probability of a hike to 45% - the sharpest single-week repricing in years. The immediate catalyst was April's CPI data: core inflation at 2.8% year-on-year, above the consensus forecast of 2.7%, with headline inflation at 3.8% driven 40% by energy costs tied to the Hormuz disruption.

The data landed on May 14, the same day Kevin Warsh officially assumed the Fed chairmanship. Warsh is a rule-based, hawkish central banker who opposed quantitative easing after the 2008 crisis. His position is that the Fed should lean on higher rates to contain inflation before cutting prematurely - a view that the CPI print reinforced precisely.

The April FOMC Vote

The April 29 FOMC decision to hold at 3.50-3.75% passed 8-4. Four dissents is the highest tally since 1992. The four dissenters wanted a hike. With Warsh now in the chair position, those four votes represent a ready majority if one more FOMC member shifts - a plausible scenario if May CPI also comes in above consensus.

BofA's New Baseline

Bank of America's rates team now sees no Fed cuts before mid-2027. Their prior call was for two cuts in the second half of 2026. The revision removes approximately 100 basis points of expected rate relief from the prior baseline. Bond markets have already begun adjusting.

How Does This Affect Duration-Heavy Portfolios?

If your portfolio carries significant weight in long-duration bonds, gilts, or bond funds positioned for a falling-rate environment, the Warsh era is a direct headwind. Duration measures how sensitive a bond's price is to changes in interest rates: the longer the duration, the larger the price drop when rates rise.

A portfolio built in 2025 around US Treasuries, UK gilts, or EUR government bonds with maturities of 10+ years was structured on the assumption that rates would fall, pushing bond prices up. That assumption is now challenged. A 25-basis-point hike from the current 3.50-3.75% range would cause a meaningful mark-to-market loss on long-duration positions.

Portfolio Assumption	Rate Environment	Duration Risk	Action Needed
2025-era: cuts coming H2 2026	Rates falling	Tailwind	Already positioned
May 2026 reality: 45% hike probability	Rates flat to rising	Headwind	Review and reduce
Warsh worst case: two hikes by Q1 2027	Rates rising 50bps	Direct loss	Shorten and rebalance

For expats holding bond funds in a SIPP, QROPS, or an offshore portfolio that has not been reviewed since 2025, the conversation to have is about duration reduction. Read how portfolio structure affects long-term expat returns.

What Does a Stronger Dollar Mean for GBP and EUR Expats?

Dollar strength driven by hawkish Fed repricing is the single most direct financial impact on expats whose income or assets are denominated in GBP or EUR. When markets price higher US rates, capital flows into dollar-denominated assets, pushing the USD up against every major currency.

GBP/USD fell from 1.3650 on 11 May to 1.3321 on 15 May, a 2.4% drop in four trading days. At current USD/MYR of 3.9541, GBP/MYR stands at approximately 5.27. A British expat in KL who remits GBP to meet local costs is receiving fewer ringgit per pound than two weeks ago.

For EUR expats, the picture differs slightly. EUR/USD at 1.1733 gives EUR/MYR of approximately 4.64. The euro has been more resilient than GBP because European rate expectations have also shifted upward, providing some relative support. However, the EU's Russian gas pipeline ban activating on June 17 introduces fresh energy-driven inflation risk for the eurozone.

See how currency swings affect expat savings and the GBP expat pension double hit in 2026 for further context.

How Does the Energy-Inflation Link Constrain Warsh?

The 40% of headline inflation driven by energy costs is the variable Warsh cannot control with rate hikes, and this creates a structural problem for his mandate. The Hormuz disruption is a supply shock. Raising rates reduces consumer spending and investment; the strait blockade is a supply problem that monetary policy cannot resolve.

Brent crude at $113/bbl adds to headline CPI mechanically. If the Iran deal closes and oil drops to $85-95, headline inflation falls with it - and Warsh's rate hike case weakens substantially. The oil binary and the Fed binary are linked. Read the oil and de-escalation analysis and what the Hormuz floor means for long-term cost planning.

What Should Expats Do With Their Portfolios Now?

The priority is a duration audit of any portfolio that has not been reviewed since mid-2025.

Shorten bond duration. Move from long-duration government bonds (10+ year maturity) into short-duration bonds (2-3 year) or floating-rate instruments. Short-duration bonds lose far less value when rates rise.

Review GBP/EUR remittance timing. GBP/MYR at 5.27 is materially weaker than the 5.60-5.80 range of early 2025. If you have flexibility in when you convert sterling to ringgit, transferring larger amounts now locks in the current rate before potential further dollar-driven weakness.

Check pension fund allocation. Many SIPP default funds carry significant bond duration. Confirm the fund's duration profile with your pension provider or review the fund fact sheet. If the fund has not been rebalanced since 2025, it may carry more interest rate risk than the current environment justifies.

Consider UCITS short-duration fixed income. Irish-domiciled accumulating UCITS short-duration ETFs offer a tax-efficient way to hold fixed income without the rate exposure of long gilts or Treasuries. Read why investment structure is the first priority for expats and how one-size-fits-all finance fails expats.

Frequently Asked Questions

Q: What is the current Fed funds rate and what would a hike mean?
A: The Fed held at 3.50-3.75% at the April 29 FOMC meeting. A 25-basis-point hike would push the target range to 3.75-4.00%. Markets currently price a 45% probability of at least one hike before year-end 2026, up from approximately 1% one week ago.

Q: Does a 45% probability mean a hike is likely?
A: Not necessarily. A 45% probability signals genuine uncertainty. A confirmed Hormuz deal bringing oil back to $85-90 would likely reduce this probability sharply. The probability remains elevated as long as energy-driven inflation stays sticky.

Q: How does GBP weakness affect my UK pension income in Malaysia?
A: At GBP/MYR 5.27 versus 5.60, a GBP 5,000 monthly drawdown produces MYR 26,350 instead of MYR 28,000 - a MYR 1,650 monthly shortfall relative to early 2025.

Q: Should I move my pension out of bonds entirely?
A: Review the duration profile of your pension fund, not the asset class. Short-duration bonds are far less affected by rate rises than long-duration ones. A blanket move out of bonds may increase equity risk without addressing the specific rate exposure you are trying to manage.

Q: Does the hawkish Fed affect my UCITS equity funds?
A: Rate hikes typically pressure growth stocks more than value stocks. Expat portfolios in broad UCITS index funds would feel some pressure, but the effect is typically smaller than for pure bond funds.

Q: When will we know if Warsh actually hikes?
A: May CPI (released mid-June) and the June FOMC meeting are the next key data points. BofA's revised baseline assumes a hike by Q4 2026 at the earliest.