A July rate hike from the Fed? The odds are rising
Renovations continue at the Marriner S. Eccles Federal Reserve Board Building, the main offices of the Board of Governors of the Federal Reserve System, on December 9, 2025, in Washington, DC.
Andrew Harnik | Getty Images
Futures traders and prediction markets expect the Fed to maintain the status quo and leave interest rates unchanged once again at its July meeting. But this will be a close call.
The possibility of the central bank increasing interest rates on Monday is increasing.
The odds that the Fed will raise interest rates by a quarter point on July 29 are currently 46.5%, according to CME’s FedWatch tool. On Sunday, this rate was 34%.
On prediction market platform Kalshi, traders now see the odds of a rise at 36%, down from below 20% on Sunday and below 10% at the beginning of this month.
The increase in rates came after President Donald Trump announced that the United States would restart its blockade of Iranian ports near the Strait of Hormuz and impose a 20% tariff on all cargo in the transit route.
US Oil prices By contrast, it rose on Tuesday, rising more than 5% to surpass $75 a barrel.
Kalshi’s chances also improved after Federal Reserve Governor Christopher Waller said the bank should not repeat the mistakes of 2021 and 2022. He said the Fed waited too long to raise interest rates in an environment of rising inflation. But he added that the bank should not overcorrect and raise rates too quickly.
Although June inflation is expected to cool slightly, the possibility of an increase is increasing. Economists polled by Dow Jones expect inflation to rise 3.8% annually in June; This figure is lower than the 4.2% rate in May. June Consumer Price Index report will be announced on Tuesday.
However, if oil prices rise again while the conflict in the Bosphorus continues, the inflation outlook may become even more complicated. And Barclays’ rating on Monday revealed inflation concerns now extend beyond just energy prices.
WTI Crude 5-day chart.
Ajay Rajadhyaksha, head of global research at Barclays, said the oil shock is still not over reflecting on higher prices and the lack of demand loss from higher energy prices is only making inflation worse. He added that artificial intelligence-induced price increases also worsen the inflation outlook.
All of this comes together to create a situation in which the Fed may have to become increasingly hawkish, Rajadhyaksha wrote.
“A data-driven framework means you respond to inflation pressures as well as forecasts,” he wrote. “And the pressures over the next few months are not going to look good.”
The Fed will announce its next decision on interest rates on July 29.
Disclosure: CNBC and Kalshi have a business relationship that includes customer acquisition and minority investment.
