Despite Falling Oil Prices, There's Now a 73% Chance of an Interest Rate Hike by September -- Here Are the 2 Culprits to Blame

The odds of a Federal Reserve rate hike by September 16 have jumped from 26% to 73%, even as oil prices decline. Core PCE inflation hit 3.4% in May—the highest reading since October 2023—and marks the 63rd consecutive month above the Fed's 2% target.

Two forces are driving the inflation resurgence. Supply chain disruptions and elevated production costs tied to the Iran conflict are rippling through the broader economy. Simultaneously, the AI infrastructure boom is pushing GPU and memory prices sharply higher as companies race to build out data center capacity.

The repricing represents a dramatic shift in rate expectations. Markets had priced in cuts or a prolonged pause just weeks ago. Now, with inflation proving stickier than anticipated, traders are betting the Fed will need to resume tightening before autumn.

The disconnect between falling energy prices and rising rate-hike odds underscores how deeply structural inflation pressures have taken hold beyond the commodity complex.