Investors assign a one-third probability to a July rate increase and near-full odds for September amid inflation and oil risks.
Markets are pricing a 34% chance of a Federal Reserve rate hike this month and nearly 100% odds for September, reflecting persistent inflation concerns and geopolitical risks. The Taylor Rule model suggests further tightening may be warranted as data gains significance in the absence of forward guidance.
Recent declines in crude prices and softer June CPI figures have not fully eased inflation worries, with 2-year breakeven rates rising in recent sessions. Oil risk premia remain elevated due to Middle East tensions, adding to inflationary pressures.
A Fed hold could steepen the yield curve modestly, pushing 10-year Treasury yields toward the 4.7-4.8% range, while front-end yields may remain anchored by expectations of future hikes.