Markets are pricing in a near-certain rate increase at the Fed's September meeting after Brent crude hit $100 and jobless claims hit the lowest level since 1969
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Traders in fed funds futures markets now see roughly an 82% chance the Federal Reserve tightens policy at its September meeting — more than 29 percentage points above where that figure stood just one week earlier, according to CNBC. The shift comes as Brent crude, the global oil benchmark, crossed $100 a barrel on Thursday for the first time since late May.
For the meeting arriving next week, the Fed is widely anticipated to leave rates where they are, within the 3.50% to 3.75% range. Still, futures contracts now assign close to a 38% probability to a quarter-point increase at that same meeting, a figure that sat below 12% seven days prior.
AAA data showed the national average for a gallon of gasoline crossing the $4 mark this week, a level not seen in over a month. Separately, Thursday's jobs report gave the Fed additional latitude to prioritize the inflation fight: first-time unemployment filings fell to 187,000 for the week ending July 18, a count not recorded since 1969 — an era when the country had only about 60% of its current population.
"At the moment, the outlook for economic growth is showing some signs of overheating if today's weekly jobless claims figures can be believed," Christopher Rupkey, chief economist at FWDBONDS, said.
Ross Mayfield, investment strategist at Baird, pointed to the 2-year Treasury yield — which gained around 5 basis points on Thursday — as a window into the Fed's trajectory, adding that the September meeting is beginning to look like one where a move is genuinely on the table. On the prediction market platform Kalshi, contracts tied to a September quarter-point increase were trading at 48% by Thursday afternoon, having started the week near 30%, according to CNBC.
U.S. stocks sold off Thursday as the rate expectations shift added to pressure already building from the oil spike. The Dow Jones Industrial Average fell about 500 points, and the Nasdaq $NDAQ Composite dropped more than 2%. "You really just have a perfect storm of headwinds right now," Larry Tentarelli, chief technical strategist at the Blue Chip Daily Trend Report, said.
The broader rate outlook from economists remains less hawkish. According to FactSet, the prevailing view among economists still calls for no rate increases in 2026, with the expectation shifting to modest easing — roughly half a percentage point in cuts — sometime in 2027.
This week's market moves build on divisions that surfaced in June FOMC meeting minutes, which showed nine of 18 policymakers saw the case for at least one rate hike before year-end. The minutes noted that persistent inflation driven by Middle East energy disruptions was among the scenarios in which "some policy firming would likely be warranted." Total PCE price inflation rose to an estimated 4.1% in May, with core PCE estimated at 3.4%.
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