Federal Reserve Rate Hike Bets Surge as Oil Prices Soar Above $100

Investors have rapidly increased their bets on a Federal Reserve rate hike after Brent crude briefly moved above $100 a barrel. The surge followed renewed supply fears linked to the Iran conflict and shipping risks across key Middle East routes. Futures markets now assign a 38% chance of a quarter-point increase on July 29, up from 13% one week earlier.

The rising oil prices have also lifted Treasury yields and tightened financial conditions across global markets. Bitcoin traded near $64,000 during a volatile trading week. Investors reassessed demand for risk assets before next week's scheduled Federal Open Market Committee policy decision.

June consumer prices fell 0.4% from May, while annual inflation slowed to 3.5%. Core inflation held at 2.6%, offering support for officials who prefer patience. Yet May PCE inflation reached 4.1%, while core PCE stood at 3.4%. Both readings sit well above the Fed's 2% target.

The central bank kept its federal funds target at 3.5% to 3.75% in June, citing supply shocks, including energy, as a factor in elevated inflation. A Federal Reserve rate hike next week would lift the range by 25 basis points and mark a rapid response to renewed inflation pressure.

The short-term Treasury yields reflect this policy risk. The two-year yield reached 4.37% on July 23, its highest level since early 2025. The ten-year yield approached 4.7%, raising borrowing costs for companies and households.