The hike case has a timeline, and it is short.
On July 15, market-implied odds of an increase at this week's meeting were 10.7 percent. By July 22 they were 34.7 percent. By July 23, 38 percent [1].
The thing that moved in between was oil. Brent topped $100 on July 23 as the Iran strikes ran nightly. Then the strikes paused, and this morning Brent stands at $90.41, down 8.10 percent from a prior close of $98.38 - at least 9.6 percent off across four sessions [3]. WTI is at $83.88, down $6.59.
As of 7:35 a.m. Eastern today, hike odds were back to 32 percent [1]. One market note put it plainly: rate-hike expectations for the week were substantially reduced, with tightening pushed to September [3].
Underneath the energy noise, June inflation went the other way on every measure. Headline CPI came in at 3.5 percent year over year, down from 4.2 percent in May and below a 3.8 percent consensus - the first decline in five months. Core CPI fell to 2.6 percent from 2.9 percent, also below consensus. The monthly print fell 0.4 percent, the largest single-month decline since April 2020 [2].
Energy was the reason: down 5.7 percent on the month, gasoline off 9.7 percent [2].
The banks are split, which is the honest way to report it. BofA Global Research sees three hikes starting September and says the oil spike made it 'a close call,' warning that not moving could 'challenge the Fed's credibility on inflation.' Deutsche Bank sees two from September. UBS 'would not be surprised' if the Fed raised rates 'to demonstrate their inflation-fighting resolve.' Citigroup argues the other way, calling a credibility hike 'difficult to justify' with market-based inflation expectations at low levels [1].
The target range is 3.50 to 3.75 percent, unchanged since before June 17. Wednesday would be the fifth consecutive hold, and consensus expects exactly that [4].
One thing nobody will hear before then: the FOMC blackout began July 18, so every Fed quote now in circulation predates the oil round trip entirely.
