Fed Rate Hike Uncertainty Spikes Amid Oil Price Surge

The US Federal Reserve's interest rate decision has become increasingly uncertain due to rising oil prices and escalating conflict in the Middle East. Despite this, most global brokerage firms still expect the Fed to leave rates unchanged at its July meeting. BofA Global Research and Deutsche Bank are exceptions, predicting two and three interest rate increases respectively starting in September.

Rising oil prices have heightened concerns that inflation may exceed the 2% annual target. Brent crude briefly climbed above $100 a barrel last week, making the situation 'extremely tight' according to BofA analysts. They added that Federal Reserve Chair Kevin Warsh faces a difficult choice between raising interest rates to demonstrate resolve in fighting inflation or risking the Fed's credibility.

Meanwhile, UBS Global Research analysts believe Warsh's influence will be the deciding factor in this meeting. Citigroup has taken a more dovish view on monetary policy, arguing that raising interest rates to preserve credibility would be difficult to justify given low market-based inflation expectations.