Given the current inflation how likely it is that fed will increase interest rates

The situation is quite dynamic right now. Here's the current picture:

Where rates stand today

At its April 29 meeting, the Fed held rates steady at 3.50%–3.75%, citing elevated inflation and higher global energy prices. Markets currently price a 95.9% probability of another hold at the next meeting. Beansprout

But a hike is becoming more likely

The Consumer Price Index rose 3.8% in April — hotter than expected and up from 3.3% in March. Energy prices alone accounted for 40% of the increase, while shelter and food also surged. "The odds of a rate hike in 2026, while still less than 50%, are rising," said Morningstar's chief US economist. Yahoo Finance

Following that inflation report, markets priced in a 37% probability of a rate hike before year-end. The key driver: the Iran war has sent energy prices soaring, and there are fears it's spreading beyond just energy into broader inflation. CNBC

What's making the Fed's job uniquely hard

Cleveland Fed president Beth Hammack noted this is "probably the fourth shock in five years" — pandemic supply chains, Russia-Ukraine, tariffs, and now the Iran war. Chicago Fed president Austan Goolsbee warned inflation is "going the wrong way — not just in oil-related things and not just in tariff-related things," with services inflation also drifting up, which particularly concerns him. Yahoo Finance

The new Fed chair walks into a mess

Incoming Fed Chair Kevin Warsh, confirmed this month, had previously argued AI could help bring inflation down and allow rate cuts. That's a very hard case to make right now to the rest of the Fed committee. Yahoo Finance

The debt trap dimension

This is where it gets really painful relative to our earlier conversation. A rate hike would:

• Make refinancing that $10+ trillion in maturing debt even more expensive
• Add potentially hundreds of billions more in annual interest costs
• Push the debt spiral faster

So the Fed faces a genuine no-win dilemma — hike to fight inflation and crush the debt budget, or hold and risk inflation becoming entrenched. Most analysts expect them to hold for now and watch, only hiking if inflation expectations become "unanchored" — meaning people start expecting high inflation permanently, which becomes self-fulfilling.