Castle Securities believes that the probability of the Federal Reserve raising interest rates in September has increased.

Castle Securities stated that as inflation becomes more sustained and widespread, the probability of the Federal Reserve starting a series of rate hikes as early as September is increasing. Frank Flight, the company's head of macro strategy, wrote in a report to clients that despite a slight decrease in oil prices after the temporary peace agreement between the US and Iran was announced, inflationary pressures during times of war are becoming increasingly entrenched. He stated that loose financial conditions, ongoing supply chain disruptions, the labor market picking up speed again, and a surge in artificial intelligence investments are all contributing factors to sustained price pressures. Flight predicts that against this backdrop, Federal Reserve Chair Kevin Wash may take a more hawkish stance at his first policy meeting he presides over on Wednesday, leading to escalating risks of rate hikes in September, December, and March 2027. This expectation is much more aggressive than current market pricing, with the likelihood of a rate hike in September corresponding to only about one-third in interest rate swap contracts.