Event Spotlight | Oil Prices Break $100, Fed Rate Hike Repriced

💡Core insight

1. An immediate rate hike in July is still not the baseline scenario, but its probability has risen significantly, with the probability of a rate hike at the July 29 meeting now rising to around 34.7%–36%;A rate hike in September has become the market's strongest current consensus, with the probability now in the 78%–82% range; market focus is shifting from 'whether to hike' towhether there will be one or two rate hikes this year。

2. The recent surge in rate hike expectations is primarily driven by energy supply shocks and hawkish signals from officials: Brent crude priceshave once again broken above $100 per barrel, coupled with multiple Fed officials consistently delivering hawkish commentary.

3. The July meeting is very likely to hold rates steady, but the window for another rate hike within the year remains open.; The September meeting, benefiting from more complete data and accompanied by the release of the Summary of Economic Projections (SEP) and dot plot, is more likely to serve as the key moment for communicating a full policy path.

4. U.S. Treasury yields rose in tandem, with the 2-year yield increasing more than the 10-year yield,confirming that the market is repricing the near-term policy rate trajectory.。

🔍 Event Background and Logical Analysis

An immediate rate hike in July is still not the baseline scenario, but its probability has risen significantlyThe probability of a rate hike at the July 29 meeting had dropped to around 10%–16.6% around July 16, but subsequently rebounded to 25.1% by July 22 due to escalating Middle East tensions, a sharp rise in oil prices, and renewed hawkish commentary, and from July 23 to 24further increased to approximately 34.7%–36%.。

Meanwhile,A rate hike in September has become the market's strongest current consensus: Around July 16, the probability of at least one rate hike by September was roughly 48.8%–49.8%; by July 21, some measures had already risen to about 64%; and by July 23–24, this probabilityhad climbed to the 78%–82% range. The market’s focus in repricing the policy path is shifting from 'whether to hike rates' towhether there will be one or two rate hikes this year。

The primary drivers behind the renewed market expectations for rate hikes are energy supply shocks and concerns over persistent inflation.June's CPI and core CPI both came in below expectations, and employment data also showed marginal weakening, which should have dampened near-term rate hike expectations; however, Brent crude oil prices on July 23have once again broken above $100 per barrel, up from $75.9 per barrel on July 10—an increase of approximately 32.3%, coupled with continued hawkish signals from officials such as Worshe, Waller, Hammack, Schmid, and Logan,led markets to reprice in the risk of a precautionary rate hike。

The July meeting will most likely hold rates steady, as the Fed is more inclined to wait and observe when evidence remains insufficient—but this does not close the window for another rate hike later this year.Before the late-July meeting, limited key data will be released—insufficient to justify a clear policy pivot; only after the meeting will data such as PCE gradually be published, making the path clearer.

Given past decision-making patterns, even if the July meeting is better suited as a pause that maintains a hawkish bias,the market will continue to price in a high probability of a rate hike in September. September data—including July CPI, PPI, and nonfarm payrolls—will help the Fed assess whether the June disinflation trend is sustainable. The September meeting will also release the Summary of Economic Projections (SEP) and dot plot simultaneously, making it better suited than the standalone July meeting to communicate a comprehensive policy path—if oil prices remain elevated by then, the transmission of energy shocks to inflation expectations and corporate costs will also become clearer.

The U.S. 10-year Treasury yield rose from 4.55% on July 15 to 4.71% on July 23,up 16 basis pointswhile the 2-year Treasury yield increased from 4.13% to 4.37%,up 24 basis points。with the short end rising more than the long end, indicating that the market is primarily repricing the near-term policy rate path, which aligns perfectly with the rising probabilities of rate hikes in July and September reflected in FedWatch—if the market were only concerned about long-term inflation and not Fed action, such a pronounced move higher in the 2-year yield would typically not occur。

Source：Cailian Press, NetEase, Morgan Stanley, Investinglive, Axios

Investment Advisory Information

Yu Shilin, Licensed Representative, CE Number: ATQ882

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