Odds of Federal Reserve rate hike surge as oil prices rip higher - CNBC

What the report says

CNBC reported that investors are increasingly positioning for a possible Federal Reserve interest rate increase in September as oil prices climb sharply amid escalating U.S.-Iran fighting. According to CME’s FedWatch tool cited by CNBC, fed funds futures recently implied about an 82% chance of a September rate hike, up from less than 53% a week earlier. The article said markets still largely expect the Fed to leave rates at 3.50% to 3.75% at its meeting next week, though the implied chance of a quarter-point increase at that meeting has also risen to nearly 38%.

The shift in rate expectations came as Brent crude reached $100 a barrel Thursday for the first time since late May, while AAA data cited by CNBC showed the average U.S. gasoline price at $4 a gallon, a more than one-month high. CNBC said stronger labor-market data added to the view that the Fed may have more room to prioritize inflation risks: initial jobless claims fell to 187,000 for the week ended July 18, the lowest level since 1969.

The report linked the changing rate outlook to pressure on financial markets. CNBC said the Dow Jones Industrial Average fell about 500 points and the tech-heavy Nasdaq Composite dropped more than 2%, with analysts pointing to higher oil prices, rising Treasury yields, Fed uncertainty and weakness in Alphabet shares as headwinds.

CNBC also noted that prediction-market traders on Kalshi increased wagers on a September quarter-point hike to 48% from roughly 30% a week earlier. Still, the article said the broader economist consensus tracked by FactSet does not expect a Fed hike this year and anticipates rate cuts in 2027.