Traders are pricing in a Federal Reserve rate hike as early as December for the first time in the current cycle, according to the Fed funds futures market.
The repricing reflects growing concerns that persistent inflationary pressures will force the central bank to tighten policy further rather than cut rates.
The shift in market expectations comes amid a series of unexpectedly high inflation readings.
Federal Reserve officials have signaled that additional interest rate increases remain on the table if price pressures do not subside.
This hawkish stance has prompted investors to adjust their positioning, moving away from the assumption of imminent rate cuts.
Geopolitical tensions in the Iran region are also contributing to the uncertainty.