Brent Crude Breaks $100 Barrier Amid Hormuz Conflict, Reviving Fed Rate Hike Odds

Brent crude punched through the $100-a-barrel threshold on Wednesday morning, hours after U.S. forces struck oil tankers linked to Iran’s Islamic Revolutionary Guard Corps operating near the Strait of Hormuz. This marks the first time the global benchmark has sustained that level since a brief late-July spike that pushed Brent to $105.32 before fading. This time, the upward momentum appears more durable, landing just six days before a Federal Open Market Committee (FOMC) meeting that was already anticipated to be a closely contested decision. The central question facing Federal Reserve Chair Kevin Walsh has shifted decisively toward whether a rate hike is now inevitable.

The scale of the recent price surge tells the story of the market’s repricing. Brent crude, which traded at $68.53 on July 2, has climbed roughly 43% in just over nine weeks, driven by escalating tensions around the world’s most critical oil transit chokepoint. West Texas Intermediate (WTI), the U.S. benchmark, has followed a similar trajectory, trading at $95.36 currently after a 9.0% weekly gain. The Energy Information Administration’s (EIA) previous outlook had assumed the strait would reopen, projecting prices to settle at an average of $89 a barrel by the fourth quarter; that forecast is now largely obsolete.

The economic ripple effects are already becoming apparent. The national average price for gasoline stands at $4.22 a gallon, the highest September price on record and a figure that predates this week’s latest crude surge. Financial markets are treating the oil shock as a significant inflationary event. The 10-year Treasury yield closed at 4.78% on September 4, placing it in the 98th percentile of the past year’s range, reflecting heightened expectations of monetary tightening.

The Federal Reserve’s policy dilemma is further complicated by underlying economic data. The central bank had previously cut its target rate range three times between September and December of last year, lowering the upper bound from 4.5% to 3.75%. However, core personal consumption expenditures (PCE) climbed to 130.658 in July, the highest reading in the past year, while headline CPI neared record levels. Combined with a robust jobs report, the fundamental case for a preemptive interest rate hike has strengthened significantly.

Market expectations have shifted dramatically in response. Polymarket pricing now indicates a 52.5% probability of a 25 basis point increase at the September 16 FOMC meeting, with odds of no change standing at 45.5%. Just a month ago, those probabilities were reversed. A rate cut is now considered highly unlikely, priced at less than 1%.

Implementing a rate hike would represent the first upward policy move of the current cycle, sharply reversing the easing path established by Chair Walsh’s predecessor. The implications are far-reaching, as mortgage rates, corporate refinancing costs, and equity valuations are all anchored to the 10-year yield, which is already trading at cycle highs. Market participants will closely watch the FOMC’s updated dot plot for any shift in the median projection for year-end 2026 above 4%. Additionally, Walsh’s commentary during the press conference will be critical: whether he frames the oil price surge as a temporary supply shock to be overlooked, or as a persistent inflationary impulse that necessitates a more hawkish policy stance.

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