Fed Hike Odds Soar to 86.5% as Oil Tops $100 Amid Rising Inflation

The Federal Reserve's interest rate hike odds have surged to 86.5% ahead of their upcoming policy meeting, amid rising oil prices and increasing inflation concerns.

Oil prices have topped $100 a barrel, driven by the ongoing Middle East conflict, which has spread from the Strait of Hormuz to the Red Sea. The price increase is affecting U.S. gasoline and diesel prices, with diesel reaching an all-time high of $6 a gallon for the first time.

The sharp rise in fuel costs is weighing on consumer sentiment, with the University of Michigan's preliminary consumer sentiment index falling to 47.8 in September, down from August's 51.7. Consumers' one-year and five-year inflation expectations have also risen to 4.6% and 3.4%, respectively.

The increased inflation pressures are driving Treasury yields higher, with the 10-year yield edging closer to the 5% mark at 4.971%. The two-year yield has closed up 0.080 percentage point at 4.630%.