Fed rate hike bets rise as oil prices and Iran war stoke inflation

September 11, 2026 at 04:03 AM2 min

This digest was compiled by AI from multiple sources — links to the originals are below.

The US Federal Reserve is expected to raise interest rates next week as surging oil prices and the US-Iran war drive inflation above target. Wall Street bets on a hike after five meetings of unchanged rates, with Deutsche Bank calling it the most likely outcome. The Bank of England also meets next week amid similar price pressures.

Key Facts

The European Central Bank raised interest rates to 2.5% citing the Middle East conflict and inflation set to remain well above its 2% target.
The US Federal Reserve has held rates steady between 3.5% and 3.75% for five consecutive meetings, last cutting in December.
Brent crude is around $105 per barrel, approaching levels last seen at the outbreak of the US-Iran war.
Deutsche Bank economists said a rate hike is the most likely policy outcome, while Oxford Economics expects rates to remain unchanged.

Rate Hike Expectations

The Federal Reserve will announce its interest rate decision on Wednesday, with markets betting on a hike after five consecutive meetings of unchanged rates. Newly appointed Fed Chair Kevin Warsh has repeatedly said the central bank's focus should be on slowing price rises, fuelling expectations of an increase. Deutsche Bank economists stated that a rate hike is the most likely policy outcome, citing comments from Warsh and other Fed members. Grace Zwemmer, US economist at Oxford Economics, expects rates to remain unchanged, but a rate cut appears to be off the table almost universally.

Inflation and Oil Prices

The US-Iran war has restricted shipments through the Strait of Hormuz, one of the world's busiest oil and gas routes. Brent crude is now around $105 per barrel, approaching levels last seen at the outbreak of the conflict. Higher energy prices directly drive up costs for homes and businesses and make transporting goods more expensive, with extra costs passed to consumers through steeper prices for food and staples. President Donald Trump said he does not think oil prices will come down until the Iran war ends, which he expects after November's elections.

Central Bank Responses

The European Central Bank recently raised interest rates to 2.5%, warning inflation was set to remain well above its 2% target for some time. The Bank of England meets later next week and is expected to weigh current price pressures against the wider economic picture. Central banks try to limit price rises with higher interest rates by pushing up borrowing costs for mortgages and credit cards, seeking to slow consumer spending and inflation. Higher rates can also encourage businesses to hold off on investing and hiring, creating a balancing act for policymakers.