Swap markets put the odds of a quarter-point Fed hike next week at just 30%, against a 70% chance of no move — a rare cliffhanger a week before a policy decision. Chair Kevin Warsh has scrapped forward guidance, and rising oil prices are nudging the debate toward a hike.
Traders head into the July 29 Federal Reserve decision with almost nothing to guide them. Swap markets price a 30% probability of a quarter-point rate hike against a 70% chance of a hold, a degree of ambiguity on the eve of an FOMC meeting that the report calls virtually unprecedented in modern central banking.
That uncertainty is deliberate. Kevin Warsh, who took the Fed’s helm in May, has dismantled the long-standing habit of forward guidance — signaling moves weeks ahead — arguing that telegraphed decisions box in policymakers when inflation data shifts.
Why the odds are drifting toward a hike
Warsh has warned that inflation remains stubborn and well above the Fed’s 2% target. Traders broadly expect the central bank to raise borrowing costs before 2026 closes, though the timing stays uncertain.
Rising energy costs are hardening that bias. As the Iran war intensifies, the 10-year Treasury yield has reached 4.65%, near its May highs, while oil trades back above $93 a barrel. According to MarketWatch, Truist Advisory Services chief investment officer Keith Lerner tied the oil move to rising rates: “Oil prices are leading interest rates up”.
The market-implied odds have moved fast. The chance of a hike this month reached 33.7% on Wednesday before easing to 31.5%, up substantially from 25.7% a day earlier, based on CME FedWatch data.
The last time markets were this unsure
According to Bloomberg News, September 2024 was the last time Wall Street faced this much pre-meeting debate. Then, under former Chair Jerome Powell, the question was whether to cut rates by 25 or 50 basis points to prop up a cooling labor market, and Powell opted for the bolder cut.
The bias now runs the other way. With guidance gone and energy prices climbing, traders face higher volatility and no safety net.
Sources: Investing.com, MarketWatch
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