Fed Rate Hike Odds Triple Amid Iran Conflict and Trumpflation Fears

The probability of a Federal Reserve interest rate hike at the upcoming July meeting has increased sharply over the past week, according to a report from Yahoo Finance. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have historically climbed despite geopolitical worries, but the current Iran conflict is causing concerns for policymakers.

The 12-member Federal Open Market Committee (FOMC), including Fed Chair Kevin Warsh, is scheduled to announce its decision on interest rates on July 29. The CME Group's FedWatch Tool indicated a 10.7% probability of a rate hike at that meeting on July 15, but by July 22, that probability had more than tripled to 34.7%.

Three catalysts appear to be driving this surge in rate-hike expectations: peace talks between the U.S. and Iran have deteriorated throughout July, leading to military escalation; Iran has announced another closure of the Strait of Hormuz, which could disrupt 20 million barrels per day of petroleum supply; and Trumpflation, inflation specifically driven by policies of the current President of the United States, Donald Trump, has entered a new phase.