Financial markets have deepened their conviction that the US Federal Reserve will raise interest rates at least once more before the end of the year. According to the CME Fedwatch tool, the probability of US rates rising by half a percentage point by December has reached 55%, implying either two quarter-point increases or a single larger hike. This outlook builds on a rate hike implemented by the Fed earlier this month.
The primary catalyst for the sentiment shift was a significant global bond sell-off, marked by the sharpest increase in the 10-year Treasury yield (+15.2 basis points) since the market turbulence of April 2025. Stronger-than-expected Purchasing Managers’ Index (PMI) figures and a rebound in oil prices have driven speculation about more aggressive monetary policy. Futures markets currently price a 71% chance of a Fed rate hike at its next scheduled meeting in October.
With unemployment at 4.1% and economic growth outpacing trend estimates, the US economy is displaying signs of modest overheating. Policy makers are increasingly aware of these conditions, and should upcoming inflation data remain elevated, they may determine that higher interest rates are necessary to dampen aggregate demand. Flash PMI data for September indicated that economic activity is expanding at its fastest pace in over five years, with new orders growing more rapidly than at any point since April 2022. Manufacturing hiring also reached its highest level since February 2021.
Despite concerns related to energy prices, substantial investment in artificial intelligence and resilient consumer spending supported overall economic performance. However, the same data noted that supplier delivery times have stretched and input costs remain high due to energy prices and supply chain pressures. On the economic calendar, the Swiss National Bank is scheduled to announce its interest rate decision, while the Bank of England’s Clare Lombardelli is set to deliver a speech on macroeconomic policy.
Five years of fast expansion sounds nice on paper, but supplier delays and input costs tell a different story.
Is anyone else worried about the oil prices fueling this? Energy costs are just making everything worse.
The PMI data is definitely cooling any hopes for a soft landing. The Fed seems locked in now.
Another rate hike? My mortgage payments just got even scarier. When does this madness end for regular folks?