Three-day, 27% jump in oil prices an important factor for Fed

Fed funds implied odds of a hike in September have risen to 40% from 38% earlier today. The recovery in stocks is one factor behind the rising probability but oil might be the larger driver.

The Fed tries to look through oil prices but lower commodities give them more flexibility in terms of the timing of a hike. In other words, depressed prices would have given the Fed more breathing room to wait until December. But with the rebound, the August oil decline has been almost entirely reversed.

Fed hike odds vs Wednesday

  • Sept 40% vs 24%
  • Oct 49.6% vs 33%
  • Dec 62.7% vs 49.2%
  • Jan 66.4% vs 54.3%
  • Mar 78.5% vs 68.0%