Oil Surpasses $100 a Barrel Amid Geopolitical Tensions; Fed Rate Hike Odds Rise
Brent crude oil prices broke the $100 per barrel threshold for the first time since late July, driven by U.S. military action against Iran-linked tankers near the Strait of Hormuz. The surge marks a 43% increase in nine weeks and has shifted market expectations around the Federal Reserve's upcoming policy decision on September 16. Traders now price a 52.5% chance of a 25 basis point rate hike, reversing earlier odds that favored no change just one month ago. The sharp rise in oil prices is already affecting consumer costs, with U.S. gasoline hitting $4.22 per gallon—the highest for September on record—and Treasury yields rising to reflect inflation concerns. The Fed's preferred inflation metric, core PCE, reached a 1-year high of 130.658 in July, while headline CPI approached records at 332.813. With the central bank having held rates steady since December 2024 and with geopolitical tensions persisting around key oil chokepoints, Chair Kevin Walsh faces pressure to respond. The Energy Information Administration's previous forecast for falling prices now appears outdated as the conflict in Hormuz shows no sign of resolution. The market is closely watching whether the Fed will view this price spike as a temporary supply shock or an inflationary impulse requiring immediate action.