Increasingly Alarming! Odds of a Fed Rate Hike Hit 93.6%
Markets are almost entirely convinced that the United States central bank, the Federal Reserve, will raise interest rates again this week.
According to the CME FedWatch Tool on Tuesday afternoon (15/9/2026), market participants estimated the probability of a 25-basis-point rate hike at 93.6%.
That conviction jumped compared with the previous day, when it was still around 84%.
If the prediction materialises, the Fed’s target rate (Federal Funds Rate/FFR) would rise from 3.50%-3.75% to 3.75%-4.00%. The decision would also mark the Fed’s first rate hike in more than three years.
The Fed is scheduled to hold its Federal Open Market Committee (FOMC) meeting on 15-16 September 2026. The policy decision will be announced on Wednesday at 14.00 Washington time, or Thursday (17/9/2026) at around 01.00 WIB.
Several global financial institutions, such as Goldman Sachs, JPMorgan, HSBC and Deutsche Bank, also expect the Fed to raise rates by 25 basis points at the September meeting.
So, what makes the market so confident that the Fed will hike rates at this FOMC meeting?
US Inflation Remains Hard to Tame
The first reason comes from the US inflation report for August 2026, which shows that price pressures have not truly subsided.
The Consumer Price Index (CPI) rose 0.4% month-on-month, higher than July’s 0.2% increase.
On an annual basis, US inflation did not rise further, but held steady at 3.4%. That figure remains far above the Fed’s 2% long-term target.
Price pressures are also visible in core inflation, which excludes food and energy components. Core inflation rose 0.3% month-on-month and 2.4% year-on-year.
The data dashed hopes that the inflation declines in June and July marked the start of a sustained trend. The Fed now faces the risk of inflation stalling or even rising again.
A higher-than-expected August producer price report further reinforced those concerns.
After the inflation data was released, the odds of a rate hike immediately jumped from around 70% to 85%. The probability then climbed further to 93.6% on Tuesday (15/9/2026) afternoon Indonesian time.
This situation leaves the Fed with increasingly little room to hold rates steady again. All the more so as US inflation has been above the 2% target for more than five years.
Market Concerns: Oil Prices and the Middle East Conflict
The next pressure comes from global oil prices, which have once again breached US$100 per barrel.
In Monday’s trading (14/9/2026), Brent crude briefly surged to US$109.80 per barrel before trimming gains. Meanwhile, West Texas Intermediate (WTI) moved back above US$100 per barrel.
The oil surge is beginning to be felt directly in the US domestic market. According to data from the American Automobile Association (AAA), the national average diesel price hit a record US$6.23 per gallon on Monday (14/9/2026). Regular petrol prices also rose to around US$4.32 per gallon.
The rise in diesel prices is more critical for the US because the fuel is used by lorries to transport food, clothing and various daily necessities. Higher delivery costs can be passed on to the prices consumers pay for goods.
The problem is that this oil surge is occurring as the world’s main energy trade route is disrupted once again by the widening Middle East conflict.
Iran said last week it had attacked 10 vessels around the Strait of Hormuz after the United States sank five Iranian oil tankers. Fresh attacks on ships were reported again over the weekend.
The situation has kept shipping traffic through the Strait of Hormuz far below normal. The strait plays a major role as it is the exit point for roughly one-fifth of the world’s oil and liquefied natural gas supply.
Supply pressure grew after Saudi Arabia temporarily closed the East-West pipeline following a drone attack. The roughly 1,200-kilometre pipeline carries oil from eastern Saudi Arabia to the port of Yanbu on the Red Sea, allowing exports to bypass the Strait of Hormuz.
Saudi Arabia and Iraq said the drones came from Iraqi territory, where a number of Iran-backed militias operate. The disruption to the pipeline threatens oil flows equivalent to up to 4% of global supply.
At the same time, the Iran-backed Houthi group again attacked several targets in Saudi Arabia. The militia has also expanded its control along Yemen’s coast and around Red Sea shipping lanes.
These developments mean two vital oil shipping routes are under pressure simultaneously. The Strait of Hormuz remains difficult to transit, while the alternative route via the East-West pipeline and the Red Sea is also facing security disruptions.