The Federal Reserve has a nearly 50% chance of raising interest rates this month! Is the global market really panicking this time?
On Monday, Wall Street's bets on the Federal Reserve's expected interest rate hikes this year reached the highest point since Warsh took office... Pricing in the interest rate swap market shows that after the United States launched a series of new attacks on Iran over the weekend, traders have significantly increased their bets on the Federal Reserve's 25 basis point interest rate hike in July. The latest pricing shows that the probability of the Federal Reserve raising interest rates by the end of this month is close to 50%, up from less than 40% earlier on Monday. At the same time, the probability that the Federal Reserve will raise interest rates at least twice before the end of this year has jumped to 56% from 34% at the beginning of this month.
On Monday, Wall Street’s bets on the Federal Reserve’s interest rate hikes this year reached the highest level since Warsh took office... Pricing in the interest rate swap market shows that traders have significantly increased their bets on the Federal Reserve raising interest rates by 25 basis points in July after the United States launched a series of new strikes on Iran over the weekend. The latest pricing shows that the probability of the Federal Reserve raising interest rates by the end of this month is close to 50%, up from less than 40% earlier on Monday. At the same time, the probability that the Federal Reserve will raise interest rates at least twice before the end of this year has jumped to 56% from 34% at the beginning of this month. This also means two interest rate hikes - becoming the most likely interest rate change scenario for the Federal Reserve this year. As the probability of raising interest rates soared overnight, there was a scene that once again made many Wall Street traders nervous. The crude oil, U.S. stock and U.S. bond markets once again showed a high degree of correlation: the surge in crude oil prices almost coincided with the sharp decline in U.S. bonds and U.S. stocks. The well-known financial blog website Zerohedge pointed out that in short, Monday’s price trend was mainly dominated by three major factors: A sharp escalation in tensions between Trump and Iran has pushed oil prices (as well as bond yields and the dollar) higher; growing concerns about AI capital spending (hyperscale data center debt panic) have caused turmoil in semiconductor and other AI-related industries; and a complete shift in hawkish stance from Fed Chairman Waller (Wash is set to testify on Capitol Hill on Tuesday) has caused Bitcoin and gold prices to plummet. In a sense, these three factors are intertwined, and they also jointly breed panic in the market. Let’s look at the crude oil market first. Oil prices jumped sharply on Monday after U.S. President Donald Trump said the United States would reimpose a naval blockade on Iran. Among them, Brent crude oil futures rose 9.6% to close at US$83.30 per barrel, which was the largest single-day increase in the international benchmark oil price since May 2020. U.S. WTI crude oil futures prices also rose 9.4% to close at $78.14. U.S. President Trump posted on social media on July 13 that the United States would resume its maritime blockade against Iran and charge a 20% fee on all goods transported through the Strait of Hormuz. In addition, according to the U.S. Central Command, the U.S. military launched another wave of air strikes against Iran on Sunday after hitting 140 targets on Saturday. The strikes were in response to Iran's Islamic Revolutionary Guard Corps attacking a container ship transiting the Strait of Hormuz. Obviously, the latest situation in the Strait of Hormuz has once again made traders in the crude oil market highly nervous. As industry analyst Michael McDonough recently tracked, commercial traffic in the Strait of Hormuz plummeted to just three ships in the last 24 hours - one from east to west and two from west to east. This number has dropped significantly from 7 ships on Sunday, 11 ships on Saturday and 57 ships at the peak of the rebound on June 24. As Brent crude oil futures prices rose sharply, the Brent oil futures premium also surged to the highest level since December 2022 on Monday. The head of Goldman Sachs' One-Delta department pointed out that the core debate in the market has shifted from whether the Strait of Hormuz is open or closed to determining whose permission is needed for transit. Goldman Sachs believes that although the United States insists that the waterway is clear, Iran claims that ships must use Iranian-controlled routes. Commercial operators are naturally reluctant to verify either side's claims. From a policy perspective, it may still be Washington, not Tehran, that is truly binding. Goldman Sachs's baseline scenario remains an uneasy compromise in which Iran exercises de facto control over transit traffic while the United States adapts to actual operating conditions and allows traffic to gradually resume. This scenario applies to an environment where Brent crude oil prices are $75-85 per barrel. Stocks, bonds and gold markets plummeted across the board In the bond market, as renewed tensions in Iran pushed up oil prices, leading to speculation that the Federal Reserve may need to raise interest rates to curb inflation, overnight short-term U.S. bond yields rose to their highest level since early 2025.
As of late New York trading, U.S. bond yields rose collectively. Among them, the 2-year U.S. bond yield rose 7.77 basis points to 4.282%, the 5-year U.S. bond yield rose 7.47 basis points to 4.376%, the 10-year U.S. bond yield rose 6.44 basis points to 4.622%, and the 30-year U.S. bond yield rose 4.85 basis points to 5.106%. In addition to the U.S.-Iran situation and rising oil prices, what intensified the sell-off in U.S. debt on Monday were hawkish comments from Federal Reserve officials. Fed Governor Waller said policymakers may need to raise interest rates if underlying inflation continues to show widespread price pressures. Ian Lyngen, head of U.S. interest rate strategy at BMO Capital Markets, said that the price of the 2-year U.S. Treasury note, which is most closely related to the Fed's interest rates, is currently continuing to weaken. Investors are still focused on the Fed's resolution on July 29 and regard it as a possible time for Warsh to raise interest rates for the first time. The concerns also ended a winning streak for the S&P 500, which itself had been under pressure at the start of the week as chipmaker shares plunged. As of Monday's close, the Dow fell 138.37 points, or 0.26%, to 52,498.64 points; the Nasdaq fell 408.43 points, or 1.55%, to 25,873.18 points; the S&P 500 fell 60.05 points, or 0.79%, to 7,515.34 points. Paul Christopher, global head of investment strategy at Wells Fargo Investment Institute, said: "As global interest rates rise and investors question the sustainability of technology-related spending, the valuations of some technology and artificial intelligence-related companies have once again come into focus. We see the market is separating the beneficiaries of artificial intelligence from those who spend it." "The situation in the Strait of Hormuz has once again become the focus of global market attention, and the energy sector is dominating price movements in global markets," said Ian Lyngen of BMO Capital Markets. "There is a growing sense that the situation may worsen before it eases." Also hit hard on Monday were the precious metals markets. Spot gold prices fell below the critical $4,000 "Maginot Line" again overnight... As precious metals analyst Tatiane Darie pointed out, although the $4,000 mark was supportive when it was last breached in late June, the current rise in oil prices, bond yields and the U.S. dollar has made it difficult to maintain this support. Gold prices remain driven by real interest rates and the direction of the U.S. dollar, both of which are currently negative for gold. Crude oil prices remain on an upward trend as another blockade of the Strait of Hormuz threatens an already weak shipping recovery. Coupled with the hawkish signal released by the Federal Reserve, this has brought new troubles to gold. Focus turns to Super Tuesday In any case, the interest rate market's surge in bets on the probability of the Federal Reserve raising interest rates this month, as well as the panic in many related markets around the world, make today's "Super Tuesday" in terms of US macro news obviously more critical. According to the schedule, the U.S. Department of Labor will release June CPI data at 20:30 Beijing time tonight, and Federal Reserve Chairman Warsh will go to Congress to deliver a testimony speech at 22:00. The recent decline in gasoline prices may help bring down the overall CPI. The index may record its first monthly decline since the outbreak of the epidemic in 2020. The year-on-year increase may also leave the "4 era" and return to the "3 prefix" - the market expects the CPI to increase by 3.8% year-on-year in June. However, the number will still be well above the Fed's 2% target. "Markets have raised their short-term rate hike expectations based on Waller's speech on Monday," said Molly Brooks, U.S. rates strategist at TD Securities. "This makes Tuesday's CPI data even more important and will increase volatility; if the data is strong, it may further exacerbate the flattening trend of the yield curve." BMO's Ian Lyngen also said, "The CPI data released on Tuesday and Warsh's speech will undoubtedly have an impact on the possibility of raising interest rates."
Regarding Warsh's testimony speech, Nick Timiraos, a well-known journalist known as the "New Fed News Agency", said that since the last Fed interest rate meeting, some of Warsh's colleagues have become more worried about inflation, and they may push to consider raising interest rates at the next Federal Reserve interest rate meeting on July 28-29. And Warsh will have the opportunity to guide this consensus when he testifies before the U.S. Congress this week. He will then have the latest June inflation data - the last important batch of data before the next meeting. Timiraos pointed out that given that Warsh has said little about his personal preferences, the Fed's interest rate decision in July is particularly important: it will be the first real signal of how he will run the Fed. Timiraos believes that Warsh will likely side with advocating keeping interest rates unchanged - although this may attract the opposition of one or two "hawks" and wait for more data to decide. Alternatively, he might support the rate-hike camp—either to reinforce the credibility of his commitment to price stability or to take the initiative and push for a rate hike he sees as inevitable. (
As of late New York trading, U.S. bond yields rose collectively. Among them, the 2-year U.S. bond yield rose 7.77 basis points to 4.282%, the 5-year U.S. bond yield rose 7.47 basis points to 4.376%, the 10-year U.S. bond yield rose 6.44 basis points to 4.622%, and the 30-year U.S. bond yield rose 4.85 basis points to 5.106%. In addition to the U.S.-Iran situation and rising oil prices, what intensified the sell-off in U.S. debt on Monday were hawkish comments from Federal Reserve officials. Fed Governor Waller said policymakers may need to raise interest rates if underlying inflation continues to show widespread price pressures. Ian Lyngen, head of U.S. interest rate strategy at BMO Capital Markets, said that the price of the 2-year U.S. Treasury note, which is most closely related to the Fed's interest rates, is currently continuing to weaken. Investors are still focused on the Fed's resolution on July 29 and regard it as a possible time for Warsh to raise interest rates for the first time. The concerns also ended a winning streak for the S&P 500, which itself had been under pressure at the start of the week as chipmaker shares plunged. As of Monday's close, the Dow fell 138.37 points, or 0.26%, to 52,498.64 points; the Nasdaq fell 408.43 points, or 1.55%, to 25,873.18 points; the S&P 500 fell 60.05 points, or 0.79%, to 7,515.34 points. Paul Christopher, global head of investment strategy at Wells Fargo Investment Institute, said: "As global interest rates rise and investors question the sustainability of technology-related spending, the valuations of some technology and artificial intelligence-related companies have once again come into focus. We see the market is separating the beneficiaries of artificial intelligence from those who spend it." "The situation in the Strait of Hormuz has once again become the focus of global market attention, and the energy sector is dominating price movements in global markets," said Ian Lyngen of BMO Capital Markets. "There is a growing sense that the situation may worsen before it eases." Also hit hard on Monday were the precious metals markets. Spot gold prices fell below the critical $4,000 "Maginot Line" again overnight... As precious metals analyst Tatiane Darie pointed out, although the $4,000 mark was supportive when it was last breached in late June, the current rise in oil prices, bond yields and the U.S. dollar has made it difficult to maintain this support. Gold prices remain driven by real interest rates and the direction of the U.S. dollar, both of which are currently negative for gold. Crude oil prices remain on an upward trend as another blockade of the Strait of Hormuz threatens an already weak shipping recovery. Coupled with the hawkish signal released by the Federal Reserve, this has brought new troubles to gold. Focus turns to Super Tuesday In any case, the interest rate market's surge in bets on the probability of the Federal Reserve raising interest rates this month, as well as the panic in many related markets around the world, make today's "Super Tuesday" in terms of US macro news obviously more critical. According to the schedule, the U.S. Department of Labor will release June CPI data at 20:30 Beijing time tonight, and Federal Reserve Chairman Warsh will go to Congress to deliver a testimony speech at 22:00. The recent decline in gasoline prices may help bring down the overall CPI. The index may record its first monthly decline since the outbreak of the epidemic in 2020. The year-on-year increase may also leave the "4 era" and return to the "3 prefix" - the market expects the CPI to increase by 3.8% year-on-year in June. However, the number will still be well above the Fed's 2% target. "Markets have raised their short-term rate hike expectations based on Waller's speech on Monday," said Molly Brooks, U.S. rates strategist at TD Securities. "This makes Tuesday's CPI data even more important and will increase volatility; if the data is strong, it may further exacerbate the flattening trend of the yield curve." BMO's Ian Lyngen also said, "The CPI data released on Tuesday and Warsh's speech will undoubtedly have an impact on the possibility of raising interest rates."
Regarding Warsh's testimony speech, Nick Timiraos, a well-known journalist known as the "New Fed News Agency", said that since the last Fed interest rate meeting, some of Warsh's colleagues have become more worried about inflation, and they may push to consider raising interest rates at the next Federal Reserve interest rate meeting on July 28-29. And Warsh will have the opportunity to guide this consensus when he testifies before the U.S. Congress this week. He will then have the latest June inflation data - the last important batch of data before the next meeting. Timiraos pointed out that given that Warsh has said little about his personal preferences, the Fed's interest rate decision in July is particularly important: it will be the first real signal of how he will run the Fed. Timiraos believes that Warsh will likely side with advocating keeping interest rates unchanged - although this may attract the opposition of one or two "hawks" and wait for more data to decide. Alternatively, he might support the rate-hike camp—either to reinforce the credibility of his commitment to price stability or to take the initiative and push for a rate hike he sees as inevitable. (