It was a bit more than one month ago when the Federal Reserve, under new Chairman Kevin Warsh, shocked markets with its hawkish outlook.
The news had traders fully expecting a rate hike at the Fed’s July or September meeting and helped send bitcoin to a multi-year low around $58,000.
In the weeks since, though, pleasing inflation news combined with mildly dovish language from Warsh himself and New York Fed President John Williams, had traders re-assessing expectations for imminent tightening.
That’s changed in the past few days. Without any official economic news or central bank chatter, interest rates have surged. The 10-year Treasury yield has risen to near a multi-year high of 4.63%, and the 2-year yield — most sensitive to the Fed’s actual policy — has jumped to near a cycle high of 4.255%.
Blame the re-ignition of the Iran war and its effect on the price of crude oil, which has surged back to almost $85 per barrel after falling to about $70 earlier this month.
The odds of a July rate hike have risen to 22% from 12% about a week ago, and the odds of one or more rate hikes by September have jumped to about 70% from 50%.
Risk markets, for the moment, don’t seem concerned with the prospect of tighter U.S. monetary policy. Bitcoin continues its rise, now more than 15% above the June low at $66,600.
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