Federal Reserve Rate Hike Expected as Markets Price in Inflation Concerns

Markets are bracing for the Federal Reserve's September policy decision, which is expected to include a rate hike by a quarter-percentage point. According to data from the CME FedWatch tool, there is a 92.4% chance of this happening, up significantly from last week's 59.4%. This expectation has driven inflation concerns and weighed on long-term bond yields.

The rise in oil prices, fueled by the conflict in the Middle East, has contributed to these concerns. Brent crude futures expiring in November are trading at $106.95 a barrel, while WTI crude futures expiring in October are trading at $102.71 per barrel.

Meanwhile, AI stocks have been weighed down by industrywide split over the pace of artificial intelligence development. Nvidia Corp. (NVDA) and Micron Technologies (MU) lost 3% and 5% of their value, respectively, while software stocks climbed higher on the idea of slowed AI development.

Traders are closely watching the Federal Reserve's decision, with some predicting a rally if rates are hiked. Jay Woods, chief market strategist at Freedom Capital Markets, said 'Hiking would be the cleaner decision based on the data and current market expectations.'