Oil price spike erodes Federal Reserve rate cut probability

The probability of a U.S. rate drawdown of at least 25 basis points at the Federal Reserve's December gathering has fallen to 16%, down from 21% a day prior. This shift in market expectations is driven by a jump in oil prices, which climbed back above $100 a barrel following a U.S. Navy blockade of ships entering or departing Iranian ports or coastal areas in the Strait of Hormuz. The blockade was ordered by President Trump after U.S. and Iran finished 21 hours of negotiations in Pakistan without an agreement. The resulting oil price spike increases the risk of energy-fueled inflation spikes globally, which in turn dents hopes for Federal Reserve interest rate cuts this year. The probability of a U.S. rate drawdown of at least 25 basis points at the December gathering is now 16%.