Fed Faces Tough Decision on Interest Rates Amid Rising Oil Prices

Despite rising oil prices and escalating tensions in the Middle East, most global brokerage firms believe the US Federal Reserve will leave interest rates unchanged at its July meeting.

However, Bank of America (BofA) Global Research and Deutsche Bank are exceptions to this view, forecasting three and two interest rate increases, respectively, starting in September.

The surge in oil prices has made the situation extremely tight, according to BofA analysts, who added that Federal Reserve Chair Kevin Warsh faces a difficult choice: raising rates could help control inflation, but would also test the Fed's credibility.

Market pricing indicates that investors now see around a 32% chance of the Fed raising interest rates at this week's meeting, up sharply from about 10% just two weeks earlier.