The Federal Reserve is poised to raise interest rates for the first time in three years, with markets pricing in an 86% to 92% probability of a 25 basis point hike at its September 16-17 FOMC meeting. Brent crude has surged past $107 per barrel and WTI is trading around $103, driven by escalating geopolitical tensions between the US and Iran that led to the shutdown of Saudi Arabia’s East-West pipeline and Houthi threats near the Bab el-Mandeb Strait. The 10-year Treasury yield touched 5% while gold fell to approximately $4,290 per ounce, a five-week low, as higher rates make dollar-denominated assets more attractive than commodities. Goldman Sachs and JPMorgan have revised their Fed hike forecasts following fresh inflation data and the oil price spike. Supply-driven inflation from geopolitical disruptions is notoriously difficult for central banks to manage, as rate hikes neither produce more oil nor reopen pipelines.
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