Oil prices fell by 9%, but the Federal Reserve still wants to raise rates? The market is once again overthinking it.

Oil prices have crashed, and the market is getting excited.

WTI has fallen below $75, and Brent has fallen below $78. The cumulative drop is over 9%, and the war premium has basically been cleared.

The news flow looks all calm and peaceful: the 60-day roadmap between the US and Iran has been finalized, the US Treasury has issued a 60-day exemption permit, and Iran has received exemptions for oil exports and had its assets unfrozen.

More than 400 oil tankers are stuck outside the Strait of Hormuz waiting for passage.

Everything looks like it’s moving in a good direction.

So the market starts to fantasize: oil prices have fallen, inflation is coming down, and the Federal Reserve should loosen its stance, right?

Wake up.

Oil prices have fallen—but the Federal Reserve doesn’t care at all.

Deutsche Bank put it plainly: the downside in oil prices brought by the temporary US-Iran peace agreement has pushed down rate-hike expectations for most countries—yet the Federal Reserve is the exception.

Why?

Because what the Federal Reserve is focused on is not oil prices at all.

At the June 18 FOMC meeting, the dot plot showed the most dramatic single shift since 2012—flipping directly from “when to cut rates” to “whether to raise rates.”

Powell’s debut removed the wording that “the next step will be a rate cut.”

This isn’t a Federal Reserve that would change its mind just because oil prices fell 9%.

What they’re seeing is three fires burning at the same time:

Tariffs are driving up prices, the AI boom is pushing up electricity and semiconductor prices, and the energy shock continues to spread.

Oil prices are only one of them. And—if oil prices are falling, what about core PCE?

Market expectations for May PCE are 4.0%-4.1% overall, and 3.4%-3.5% for core PCE.

Even after removing energy and food, inflation is still stubborn.

Bank of America goes straight to the point: “The Fed’s inflation problem has clearly worsened.”

Even more painful: falling oil prices might actually make rate hikes more resolute.

The logic is simple—

Oil prices fall → short-term inflation pressure eases → the economy doesn’t fall into recession → the Federal Reserve has more confidence to raise rates.

You think it’s a positive—but it turns into fuel for rate hikes.

Deutsche Bank also said that risks to rate-hike expectations run both ways: from a dovish perspective, falling oil prices could reduce the urgency of hikes; from a hawkish perspective, a consensus on hikes could be reached as early as July.

How is the market betting right now?

CME data shows: a 52.2% probability of cumulative 25 basis points of rate hikes in September, and a 21.4% probability of 50 basis points—together, more than 73% of people are betting on a September rate hike.

Bank of America even predicts 25 basis points each in September, October, and December, totaling 75 basis points.

Oil prices fell by 9%, but the odds of rate hikes are unmoved.

“Oil price declines are the market’s painkiller, but the Federal Reserve is trying to treat the root cause.”

What is the root cause? It’s the broad spread of inflation expectations, structural price pressures stemming from the AI investment boom, and the long-term effects of tariff policy.

These can’t be solved by just a few months of falling oil prices.

This Thursday and Friday, PCE data will be released. If core PCE really reaches 3.5%, then a rate hike in September will be set in stone.

Don’t blame me for not warning you in advance:

“ You think falling oil prices are saving the market, but they’re only handing the Federal Reserve a faster blade.” #我的Gate交易时刻 #Gate直通韩股股票 $BTC $BZ $CL