Fed Rate Hike Odds Soar as Trump Policies Fuel Inflation

The Federal Reserve is likely to raise interest rates for the third time this year on October 28, according to the CME Group's FedWatch Tool. The tool uses 30-day Fed Funds futures prices to track the probability of rate hikes/cuts at future FOMC meetings and currently shows a 57.6% chance of a quarter-point hike.

The surge in interest rate hike odds is attributed to various factors, including President Donald Trump's policies that are contributing to elevated inflation. One such factor is the tariffs imposed by the Trump administration on imports from over 80 countries, which have increased domestic manufacturing costs and led to higher prices for consumers.

Another significant contributor to inflation is the Iran war, which halted the flow of a fifth of the world's crude oil supply after military action commenced against Iran in February. Although peace talks between the U.S. and Iran have ramped up since June, fuel prices are once again climbing, with diesel prices reaching an all-time high last week.

The rapid growth in inflation is also being fueled by the artificial intelligence (AI) data center build-out, which has led to persistent supply shortages of graphics processing units and memory. This shortage has sent chip prices into the stratosphere and resulted in higher prices for consumers.