Market expectations surrounding the U.S. base rate are rapidly tilting toward a hike. With price pressures compounded by rising international oil prices, the probability that the Federal Reserve (Fed) will raise the base rate at the September Federal Open Market Committee (FOMC) meeting has exceeded 90%.

92.4% Hike Probability... Freeze Outlook at Just 7.6%

According to the CME FedWatch on the 15th, the interest rate futures market is pricing in a 92.4% probability that the Fed will raise the base rate by 0.25 percentage point at the FOMC meeting to be held on the 15th and 16th. The current target range for the U.S. base rate is 3.50% to 3.75% annually. If a hike is decided as the market expects, the rate will rise to 3.75% to 4.00%.

The outlook for a freeze has dropped significantly. According to FedWatch, the probability of maintaining the current level stood at just 7.6%, while the possibility of a rate cut was virtually not priced in. This means the market is effectively treating this meeting as an event with a high likelihood of a hike.

FedWatch Probabilities Are Not the Fed's Official Position

However, the probabilities shown on FedWatch are not the Fed's official stance. They are numerical representations of how market participants' expectations are leaning, based on the prices of 30-day federal funds rate futures, and can change at any time depending on trading conditions.

The speed of the shift is also notable. Just a few days ago, the rate hike outlook hovered around 70%, but as concerns over prices and energy costs grew, it climbed to above 90%.

Key Variable Is International Oil Prices... First Hike in 3 Years and 2 Months Possible

One of the key variables market participants are watching is international oil prices. If energy price gains persist, they could push consumer prices back up through higher transportation and production costs. If inflation stabilizes more slowly than expected, the Fed may also have stronger grounds to maintain its tightening stance.

If a hike is actually implemented at this FOMC meeting, the United States would raise its base rate for the first time in about three years and two months since July 2023.

Market Focus Is on the 'Message After the Decision'

Not only the rate hike itself but also the Fed's explanation about the possibility of further adjustments going forward has emerged as a key point of market interest. In particular, given that the interest rate futures market is already pricing in a more than 90% probability of a hike, investors' attention is likely to focus even more on the message following the decision.

If the Fed leaves the door open to additional hikes, U.S. Treasury yields and the dollar could come under renewed upward pressure, and volatility in risk assets such as stocks and cryptocurrencies could increase. Conversely, if the Fed unexpectedly freezes rates, the market would have to quickly revise its existing outlook. In that case, short-term price swings in bonds, foreign exchange, and stock markets could also widen.

Ultimately, analysts say the key issue at this September FOMC is not simply whether rates will be raised, but how seriously the Fed views price and oil price increases, and how much room it leaves for additional tightening through the end of the year.

[The base rate is determined by decisions of the Federal Reserve's FOMC. Investment-related content is general market information and does not constitute a recommendation to buy or sell any specific asset. AI provided some assistance.]