Renovations continue at the Marriner S. Eccles Federal Reserve Building, the main office of the Federal Reserve Board, in this photo on December 9, 2025 in Washington, DC.
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Futures traders and prediction markets still expect the Fed to maintain status quo at its July meeting, leaving interest rates on hold again. But that would be a close call.
The central bank is now more likely to raise interest rates on Monday.
According to CME’s FedWatch tool, the probability that the Fed will raise interest rates by a quarter of a point on July 29th is currently 46.5%. That’s up from 34% on Sunday.
On prediction market platform Karshi, traders now see a 36% chance of a rate hike, up from less than 20% on Sunday and less than 10% earlier this month.
The odds increased after President Donald Trump announced that he would reinstate a U.S. blockade of Iranian ports near the Strait of Hormuz and impose a 20% toll on all cargo passing through the strait.
US crude oil prices It rose accordingly on Tuesday, rising more than 5% to more than $75 a barrel.
Kalsi’s odds also jumped after Federal Reserve Chairman Christopher Waller said the Fed should avoid repeating the mistakes of 2021 and 2022, when it waited too long to raise rates amid rising inflation. However, he added that the central bank should not be in a hurry to correct or raise rates too much.
Even though inflation was expected to slow slightly in June, the chances of a rate hike are increasing. Inflation is expected to rise at an annual rate of 3.8% in June, down from 4.2% in May, according to a survey of economists polled by Dow Jones. The Consumer Price Index report for June will be released on Tuesday.
However, the inflation outlook could become more complicated if oil prices rise again as the Straits dispute resumes. And Barclays’ Monday note argued that inflation concerns are no longer just about energy prices.
This is a 5-day chart of WTI crude oil.
Ajay Rajadhyaksha, chairman of global research at Barclays, said that the price hikes caused by the oil crisis have not yet been passed on, and that the lack of demand destruction from soaring energy prices will only exacerbate inflation caused by the oil crisis. He added that AI-driven price increases are also worsening the inflation outlook.
All of this combines to create a situation in which the Fed may be forced to become increasingly hawkish, Rajadhyaksha wrote.
“A data-driven framework means that it not only forecasts but also records inflation,” he wrote. “And for the next few months, the prints won’t look good.”
The Fed is scheduled to announce its next decision on interest rates on July 29th.
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
