On Wednesday, June 17, 2026, a television station broadcast remarks by U.S. Federal Reserve Board Member Kevin Warsh speaking after the Federal Open Market Committee (FOMC) meeting in the chambers of the New York Stock Exchange (NYSE) in New York, USA.
Michael Nagle | Bloomberg | Getty Images
As oil prices rise, investors are increasingly preparing for an interest rate hike by the U.S. Federal Reserve.
According to CME’s FedWatch tool, federal funds futures are pricing in about an 82% chance that the central bank will raise borrowing costs at its September policy meeting. A week ago, that probability was less than 53%.
The central bank is still widely expected to keep interest rates unchanged at the current 3.50-3.75% at next week’s meeting. But a growing minority still plans to raise interest rates. The probability of a quarter-point rate hike is nearly 38%, according to federal funds futures contracts, up from less than 12% a week ago.
brentAmid new retaliatory attacks between the United States and Iran, the world’s benchmark oil price hit $100 a barrel on Thursday for the first time since late May. Average U.S. gasoline prices hit $4 a gallon this week, the highest price in more than a month, according to AAA.
Thursday’s jobs report confirmed the view that the Fed could focus more on inflation, which could be accelerated by higher energy prices, than on the health of the labor market.
The number of new jobless claims fell to 187,000 for the week ending July 18, the Labor Department reported. This was the lowest number of applications since 1969, when the U.S. population was 60% of its current size.
“At this point, if the weekly jobless claims figures are to be believed, the economic growth outlook is showing signs of overheating,” said Christopher Rapke, chief economist at FWDBONDS. “But the question is how long energy prices will continue to rise.”
Rising expectations for a rate hike could put more downward pressure on the stock market on Thursday, said Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report. Add to this the sharp rise in oil prices and US Treasury yields. alphabet‘s subsequent earnings have swooned, he said.
Excellent company Dow Jones Industrial Average It dropped by about 500 points. of Nasdaq Composite It fell more than 2%, weighed heavily in tech stocks that are sensitive to rising borrowing costs.
“We’re really facing a perfect storm of headwinds right now,” Tentarelli said.
Nasdaq Composite, 1 day
“With the Fed’s board meeting scheduled in six days, I don’t think investors should rush into buying anything,” he added. “Sometimes you can just sit back and bear it.”
“One-shot”
Market participants looking for insight into the Fed’s outlook are closely monitoring the Fed’s outlook. 2 years US Treasury yield. Ross Mayfield, investment strategist at Baird, said yields, which rose about 5 basis points on Thursday, provide “foresight on what the Fed will do next.”
US 2 year Treasury, 1 month
Mayfield said investors don’t need to worry about interest rate movements next week, but September feels like a “live” meeting for the Fed.
Kalsi traders have similarly increased their bets on a September quarter point rally in recent days. The odds of such a move at the conference rose to 48% by midday Thursday, up from about 30% a week ago.
To be sure, economists’ interest rate forecasts through 2026 do not suggest a tightening monetary environment.
According to FactSet, the consensus expectation remains that the Fed will not raise interest rates this year. Economists expect the central bank to cut borrowing costs by 0.5 percentage points in 2027.
— With additional reporting by CNBC’s Sean Conlon
