Wall Street now puts the odds of a Fed rate hike next week at roughly one in three, up from about 12% a week earlier, according to CME Group's FedWatch tool, which reads those odds off 30-day Fed funds futures prices. The Federal Open Market Committee meets July 28-29, and Chair Kevin Warsh will announce the decision Wednesday at 2 p.m. ET.
Most economists still expect a hold. FactSet's polled economists predict the Fed keeps its target range at 3.5% to 3.75%, which would be its fifth straight meeting without a change.
The reason the hike odds moved at all comes down to oil. Prices topped $100 a barrel on Thursday, and the July repricing tracked back to a reinstated blockade of Iranian ports near the Strait of Hormuz, paired with a 20% cargo toll that pushed crude up more than 5% and past $75 per barrel. Softer inflation data in mid-July pulled the hike probability back toward the mid-30s.
Fed officials have kept inflation front and center in recent speeches. Governor Lisa Cook said on July 15 that the price index the Fed targets rose 3.7% in the 12 months through June, 1.7 percentage points above the 2% goal, and that high-inflation risks concern her more than the job side right now. Vice Chair Philip Jefferson and Governor Christopher Waller both warned they might reconsider the current policy stance if inflation doesn't cool.
Warsh, who succeeded Jerome Powell in May, has pledged to restore price stability while sharing less forward guidance. He submitted no individual projection at the June meeting, when the committee split nine to nine on whether rates should rise before year-end.
Forecasters see the September meeting as the real test. Gregory Daco of EY-Parthenon expects the Fed to stay on hold through the rest of the year but called it a 60-40 call. Simon Moore wrote that fixed-income markets' most likely path is two hikes this year, possibly starting in September or October.
