Investors bet on Federal Reserve rate rise after oil price surge

{"text":[[{"start":10.85,"text":"Investors are cranking up bets that the Federal Reserve will raise rates as soon as next week as the resurgence in oil prices triggered by the escalating war in Iran threatens to ignite a fresh burst of inflation. "}],[{"start":23.6,"text":"Markets are pricing in a 38 per cent chance that the Fed will lift rates by a quarter point on Wednesday, up from just 13 per cent a week ago, according to CME Group data based on federal funds futures. "}],[{"start":37,"text":"The increase in rate-rise odds highlights how Fed chair Kevin Warsh is coming under growing pressure to show that the US central bank is prepared to contain a fresh jolt of inflation."}],[{"start":47.4,"text":"It marks a sharp shift in sentiment since July 14, when a subdued consumer price index reading sent rate rise odds tumbling. "}],[{"start":56.75,"text":"“The July Fed meeting is definitely live. It is very questionable whether monetary policy is restrictive at the moment,” said Mark Cabana, head of US rates strategy, Bank of America. “And oil is now rising again.” "}],[{"start":70.6,"text":"Robert Sockin, chief US economist at PGIM, a $1.4tn asset manager, described next week’s meeting as “almost a 50-50 call”. "}],[{"start":null,"text":"

"}],[{"start":80.35,"text":"Brent crude breached $100 a barrel on Thursday for the first time since May as Donald Trump said he was weighing a “massive attack” on Iran, leaving the oil benchmark up 25 per cent since the June Fed meeting. "}],[{"start":93.94999999999999,"text":"Prices for petrol and diesel have shot higher in recent weeks, raising costs for both consumers and US industry. "}],[{"start":101.54999999999998,"text":"Investors said there was unusually high uncertainty over the Fed’s plans for next week’s two-day meeting since Warsh has remained more tight-lipped about his views on the economy than his predecessor Jay Powell, who rarely left markets guessing on the central bank’s next moves. "}],[{"start":117.89999999999998,"text":"CME Group said trading in federal funds futures ahead of the meeting had been 50 per cent higher than the July 2025 decision, when markets had correctly priced in a 96 per cent probability the US central bank would hold rates at this point in the run-up. "}],[{"start":134.99999999999997,"text":"Agha Mirza, global head of rates and OTC products at CME Group, said the higher volumes were “caused by the increasing chatter about whether the market was correctly pricing in a low probability of a rate rise, given Warsh’s vigilance on inflation”. "}],[{"start":150.39999999999998,"text":"Warsh told Congress earlier this month that he would have “no tolerance” for persistently high inflation but offered few clues on policy plans. The Fed’s preferred PCE inflation gauge was 4.1 per cent in May, more than double its 2 per cent target. "}],[{"start":165.95,"text":"Some investors and economists say that if bets on rate rises mount further in the run-up to the Fed decision, it could force policymakers into a rate increase. "}],[{"start":174.79999999999998,"text":"“When the Fed has missed on inflation for this long, if the market prices a hike and the Fed does not deliver, what they are doing is easing in the face of market expectations,” Cabana said. "}],[{"start":186.7,"text":"The 12 voting members on the Federal Open Market Committee also have some way to go to reach a unanimous decision. "}],[{"start":192.95,"text":"Lorie Logan, the president of the Dallas Fed, and Beth Hammack, her counterpart at the Cleveland Fed, have both said the US central bank has waited long enough to get on top of an inflation problem that continues to weigh on American households and businesses. "}],[{"start":null,"text":""}],[{"start":207.54999999999998,"text":"Another voting FOMC president — Minneapolis’ Neel Kashkari — could also back a rate rise, even if the majority opts to keep borrowing costs on hold."}],[{"start":218.14999999999998,"text":"“Hawkishness in the Fed is reaching a type of critical mass,” said Sockin."}],[{"start":222.64999999999998,"text":"Donald Trump’s tariffs and the AI boom, which has sent prices for chips and other parts soaring, threaten to keep price pressures in the US economy elevated, even if tensions with Iran ease, economists said."}],[{"start":235.09999999999997,"text":"“Inflation is hotter for reasons that have very little to do with oil — there’s a little bit of tariff pass-through, there’s demand in the system from AI and then there’s this chunk of inflation due to services that we haven’t been able to squeeze out of the system for a few years,” said Edward Al-Hussainy, portfolio manager at Columbia Threadneedle. "}],[{"start":254.49999999999997,"text":"Influential voices on the FOMC, such as New York Fed president John Williams, have suggested waiting until September to decide on a rate rise, which would provide more time to see how inflation plays out this summer."}],[{"start":268.2,"text":"Some think the cooler-than-anticipated consumer price index reading for June, which showed inflation at 3.5 per cent, could persuade others on the committee to follow suit. "}],[{"start":278.75,"text":"“They’re going to be talking seriously about the pros and cons of a rate hike,” said Claudia Sahm, a former Fed official who is now chief economist at New Century Advisors. “But looking at the commentary from various Fed officials, I just don’t see a majority in favour of raising rates already.”"}],[{"start":296.05,"text":"Eric Wallerstein, a former adviser to ex-Fed governor Stephen Miran who is now at Clocktower Group, added that, “now’s not the time for shock and awe, given that there’s nothing in the underlying data that justifies a surprise”. "}],[{"start":310.05,"text":"Others argue that Warsh, who took over from Powell in May, has an opportunity next week to show that he is an inflation fighter and that he is serious about returning price growth to the central bank’s target."}],[{"start":321.5,"text":"“Why wait till September if you can just do it now?” said Joe Lavorgna, chief US economist at SMBC Nikko Securities America and former economic counsellor for US Treasury secretary Scott Bessent. "}],[{"start":335.15,"text":"Lavorgna added that Warsh could handle the political fallout from Trump — who consistently attacked Powell for keeping interest rates too high — by pointing out to the US president that taking a firm stand on inflation now could help lower long-term borrowing costs, which are driven by expectations for inflation in the coming years. "}],[{"start":352.45,"text":"“If I’m Kevin Warsh, I’d go to the White House and say: ‘Mr President, we hiked rates, but actually lowered long-term borrowing costs for corporates and, more importantly, for households,’” he said. “And, at the short end, people will get paid more interest on their savings. It’s a win-win.”"}],[{"start":376.34999999999997,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1784979522_9081.mp3"}