Traders see an equal probability of a US interest rate hike later this month, as a renewed rise in oil prices and hawkish comments from Fed officials signal a rapid move to curb inflation.

Money market pricing on Monday indicated that traders increased their bets on a quarter-point rate hike in July, after a series of new US strikes on Iran.

The pricing reflected a 50% probability of a rate hike, up from 40% earlier in the session, after Federal Reserve Board Governor Christopher Waller said policymakers may need to raise rates if core inflation continues to indicate broad price pressures.

Two-year Treasury yields, the most sensitive to changes in Fed policy expectations, rose as much as 7 basis points to 4.28%, the highest since February 2025. The five-year yield reached a similar peak at 4.37%, while the benchmark 10-year yield hit 4.62%, up 6 basis points, the highest since May.

Sun, 12 2026

The rise in Treasury yields comes ahead of US consumer and producer price data due this week, along with testimony from Fed Chair Kevin Warsh.

Waller said that if Tuesday's core inflation reading comes in high, officials will need to consider tightening monetary policy in the near term.

Molly Brooks, interest rate strategist at TD Securities, said markets have raised near-term rate hike expectations in response to Waller's message, adding: "This makes Tuesday's CPI reading more important, and therefore more volatile, with risks of further flattening if we get a higher reading."

Tue, 07 2026

Inflation data to determine July decision expectations

The rise in short-term interest rates reflects growing expectations that the Fed will need to raise rates sooner to curb price pressures from the rebound in global energy prices, as well as signs of resilience in the US economy.

US consumer and producer price index data will be a key focus this week, as they will be the last inflation readings before the next Fed meeting.

Both headline and core CPI, due out Tuesday, likely slowed slightly in June, though expectations suggest they remain well above the Fed's 2% target, according to a Bloomberg survey of economists.

Geopolitically, Brent crude jumped as much as 9.9% during the day after the US and Iran exchanged new strikes, with both sides issuing conflicting statements on whether the Strait of Hormuz remains open.

Bond moves extended after US President Donald Trump said the US is "re-imposing" a blockade on Iranian ships.

Tue, 14 2026

Warsh will also appear before Congress this week for the first time since becoming Fed chair, after vowing to reduce forward guidance on rate expectations.

Although markets are pricing increased risks of a rate hike, the base case for many investors still assumes no monetary tightening this year.

Ian Lyngen, head of interest rate strategy at BMO Capital Markets, said: "Investors remain focused on the July 29 FOMC meeting as a potential timing for the first rate hike under Warsh," adding: "Certainly, the CPI data and Warsh's appearance will push the probability one way or the other."