The Federal Reserve looks set to raise its benchmark rate for the first time since July 2023, with traders pricing a 90-94% probability of a quarter-point move at today's FOMC meeting. Surging oil prices, a hawkish Chair Kevin Warsh and resilient jobs data have driven the shift, pushing the 10-year Treasury yield to its highest level since 2007.
The Federal Reserve looks poised to raise its benchmark interest rate for the first time in over three years. CME FedWatch and interest-rate swaps markets are assigning a 90-94% probability to a 25-basis-point hike at today's FOMC meeting, up from roughly 36% just a month ago.
A hike would lift the federal funds target range to 3.75%-4.00%, reversing six consecutive cuts totaling 175 basis points since the Fed's last increase in July 2023.
Oil and a hawkish Warsh push the Fed to act
Oil prices have surged past $100 a barrel, driven by escalating US-Iran tensions that have squeezed global energy supply. Chair Kevin Warsh's hawkish tone at the Jackson Hole symposium in late August signaled the central bank was ready to act if inflation refused to cooperate.
Morgan Stanley reflected the broader shift on Wall Street: the firm switched its forecast from no hikes this year to two, expecting one this week followed by another in December. Nearly 93% of traders now expect an increase, according to CME Group data.
Bond yields hit a multi-year high
The 10-year Treasury yield hit 5.041% on Tuesday, its highest level since 2007, before easing to around 4.96%. The dollar has strengthened against major currencies in tandem, a byproduct of higher rate expectations drawing capital into US-denominated assets.
What happens next
The decision is due at 2 p.m. ET, alongside an updated Summary of Economic Projections and a fresh dot plot that, for the first time, will include expectations for 2029. Bespoke Investment Group noted the S&P 500 has fallen on each of the past five Fed decision days this year, averaging a 1.5% drop in those sessions.
Sources: Crypto Briefing, US Top News and Analysis, Barrons.com (snippet-based)
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