Markets price 77% odds of a Fed rate hike by year-end as oil and AI chip shortages stoke inflation fears

Markets are pricing a 77% chance that the Federal Reserve will raise rates by at least a quarter point by the end of the year, driven by higher oil prices linked to the U.S.-Israeli war on Iran and AI-related chip shortages that are lifting electronics costs. Citi Research’s Andrew Hollenhorst disputes that view, arguing the oil market has swung from shortage to surplus, core CPI could slip below 2.5% by August, and payroll growth may cool starting with the June jobs report. Brookings senior fellow Robin Brooks also downplayed the Fed’s hawkish messaging and said the June CPI release on July 14 could shift expectations back toward cuts.