The probability of the Fed raising interest rates in July surges, and the Hormuz conflict reignites inflation concerns
Affected by the escalating geopolitical conflicts and hawkish statements by Federal Reserve officials, market expectations for the Federal Reserve to raise interest rates in July have increased significantly. CME Group's FedWatch tool shows traders expect the probability that the Fed will raise interest rates by 25 basis points at its July 29 meeting has risen to 46.5%, up from 34% on Sunday. On the prediction market platform Kalshi, this probability has also jumped from less than 10% at the beginning of the month to 36%. The main driver of the sharp change in market expectations is the renewed deterioration of the situation in the Middle East. U.S. President Trump announced the reinstatement of a blockade of Iranian ports and a 20% toll on all freight passing through the Strait of Hormuz. Affected by this, international oil prices jumped sharply, with Brent crude oil soaring by more than 9% and regaining its position above US$80 per barrel. The rise in oil prices directly strengthened the market's judgment on lingering inflationary pressures. Meanwhile, Federal Reserve Governor Christopher Waller sent the clearest hawkish signal yet. He said that if the core inflation data released this week is again on the hot side, the Fed will need to consider tightening monetary policy in the near future. Waller pointed out that current inflationary pressures come from multiple factors such as tariffs, energy prices, and large-scale AI infrastructure construction. The core inflation rate has continued to rise since the beginning of the year, which worries him. Although the market expects June CPI data to show a cooling of inflation - economists predict that the year-on-year increase will drop from 4.2% to around 3.8% - analysts warn that if the conflict in the Strait of Hormuz continues, the rising effect of energy prices will continue to be transmitted, coupled with the price pressure brought by the AI investment boom, the outlook for inflation cooling may become more complicated. Open a futures account on Sina's cooperative platform, safe, fast and guaranteed