A contentious meeting
Renewed tensions in the Middle East, an AI-driven demand boom and new tariffs from the Trump administration are making this week’s Fed rate decision a close — and contentious — call.
Soaring energy prices prompted investors to boost their bets on a rate hike on Wednesday to about to 40% at one point last week. As it stands now, bond traders are pricing in roughly a one-in-three chance of an increase. The yield on the 10-year US Treasury note stood Friday at the highest since January 2025 before today’s pullback.
“Roughly one third of the banks we work with are positioning for further rate increases, while the rest are hedging against cuts,” said Pradeep Bhatia of Derivative Path, which helps financial institutions hedge rates and currency risks. “That kind of bifurcation tells you the market has stopped trying to predict the Fed and started preparing for both outcomes.”
As well as muddying the rates picture, the surge in oil prices has also wreaked havoc with the so-called Trump Trade.
Ned Davis Research’s Trump Trade Index — which consists of a dozen exchange-traded funds expected to benefit from White House policies on homebuilding, defense spending and the re-shoring of manufacturing — has slumped about 16% since May after clobbering the S&P 500 at the beginning of the year.
“All this is tied to the Iran war and inflation,” said Pat Tschosik of Ned Davis Research. “Between some sort of tariff, or war, or supply chain disruption, could we just go three months without some sort of supply shock?” — Jonnelle Marte, Maria Eloisa Capurro, Geoffrey Morgan and Joel Leon