Traders price ~50% chance of Fed hike by October
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- Federal Reserve officials on average still forecast a single 0.25% rate cut this year, even as Chair Jay Powell warned the Middle‑East conflict will push up inflation.
- Société Générale’s Subadra Rajappa notes traders now price a roughly 50% chance of a 0.25% Fed hike by October, a stark reversal from pre‑war expectations of multiple cuts.
- U.S. two‑year Treasury yields jumped to 3.94% (up 0.11 ppt) before settling at 3.88%, up 0.5 ppt since the war began.
- Brent crude prices have surged about 50% since the conflict started, reflecting disruptions from the Strait of Hormuz closure.
- President Donald Trump’s campaign for lower borrowing costs would be undercut by a potential rate rise.
- RBC Capital Markets’s Blake Gwinn warns the market’s hawkish pricing may be detached from fundamentals, meaning a Fed hike is not a given.
Why it matters: The shift to a 50% odds of a rate hike raises borrowing costs for businesses and consumers, while threatening President Trump’s narrative of lower rates; it also signals that market participants are pricing in higher inflation despite the Fed’s still‑dovish outlook, potentially reshaping bond market dynamics.
