Amid concerns related to Iran and a hawkish stance from Waller, traders increase bets on Federal Reserve rate hikes

As oil prices soar, reigniting inflation concerns, traders have increased their bets on a Federal Reserve rate hike, with the market now fully pricing in a 25 basis point increase in September. Swap contracts tied to policy meeting dates show a rate hike expectation of 25 basis points, up from 23 basis points on Thursday and 8 basis points earlier this week. This trend has emerged during thin trading, as the US market was closed for a public holiday. Investors are pricing in further tightening of Federal Reserve policy. New chairman Kevin Walsh stated at his first meeting this week that the central bank will not tolerate high inflation, a stance that pushed yields higher on Wednesday. With the market still doubtful about the latest peace agreement signed between the United States and Iran, oil prices have rebounded about 4% from Thursday’s three-month low. Matthew Ryan, head of market strategy at Ebury, said: "We’ve now reached a point where even the slightest catalyst could tip the scales in favor of a rate hike." Referring to remarks made in this week's Federal Reserve decision, he added: "The fact that the Fed’s inflation target hasn’t been met for five consecutive years was mentioned several times, all reinforcing the case that higher rates might not be so far off."