Fed Rate Hike Odds Cross 60% Amid Inflation Concerns

The US Federal Reserve's rate hike odds have crossed 60% as investors anticipate higher interest rates. This comes despite ongoing inflation concerns, which are being exacerbated by rising oil prices due to tensions between the US and Iran.

According to CME Fed Watch, the futures market expects a 60% possibility of a rate hike announcement by US Fed chair Kevin Warsh on September 16. The odds of a rate hike have been increasing as investors focus on inflationary pressures, which remain high despite persistent inflationary pressures.

The strong economy is also reflected in bond yields reaching multi-decade highs across Japan, the US, and Europe. Federal Reserve Bank of New York President John Williams noted that the increase in long-term bond yields reflects a strong economy rather than inflation fears. However, he acknowledged that fighting inflation remains one of his priorities.

The case for a rate pause is also emerging as manufacturing activity cooled last month with the ISM index slipping to 54.6, below the forecast of 55.2. Job openings have also shrunk, coming in at 7.27 million. However, the ISM index still points to expansion, signaling growth despite the slowdown.

Bond yields are already telling their own story as a global sell-off has impacted sovereign bond markets, resulting in yields reaching multi-decade highs. Japan's 10-year bond yield reached 3% for the first time since 1996, and globally, investors are dumping government securities, sending yields higher.