For the first time in years, Wall Street is divided over what the U.S. Federal Reserve will do regarding interest rates.
The current betting is that the American central bank will leave interest rates unchanged at the conclusion of its latest policy meeting on July 29.
The futures market is pricing in a 25-basis point interest rate hike from the Fed at the end of its next meeting on Sept. 16.
However, it is not a certainty that the Fed will keep its Federal Funds Rate at its current range of 3.50% to 3.75% this time around.
A week ago, the odds of an interest rate hike on July 29 stood at 10%. By July 27, those odds had risen to 36% among futures traders.
The chances of an interest rate hike stood at 30% early on July 29 ahead of the central bank’s announced decision.
Essentially, Wall Street sees an interest rate increase this time as possible but not probable. It’s the most divided that traders have been about interest rates in several years.
The reason for the uncertainty stems largely from crude oil prices, which continue to swing wildly depending on the fighting between the U.S. and Iran.
In recent weeks, oil prices have risen from less than $70 U.S. a barrel to more than $100 U.S. a barrel, only to fall this week back close to $80 U.S. per barrel.
The swings in oil prices are wreaking havoc with consumer prices in the U.S. and making it difficult for the Federal Reserve to act on inflation, say analysts.
Inflation in the U.S. has been stuck above the Fed's 2% target for more than five years.
Another complicating factor is growing division among Federal Reserve governors over whether interest rates should be raised or lowered.
New Federal Reserve Chair Kevin Warsh has talked tough on inflation but it remains to be seen if he’ll vote for rate hikes and risk angering U.S. President Donald Trump, who appointed him.
