Federal funds futures priced a 46.5% probability of a quarter-point Fed hike at Wednesday's meeting as recently as July 13, according to CME FedWatch data reported by CNBC. By July 21, that probability had fallen to roughly 17%, even as oil kept climbing toward the $86.95 close West Texas Intermediate reached this week. The odds moved more than the underlying story did, and the reason why says more about the Fed's July 28-29 decision than the price of oil does on its own.
The Bank of Canada does not have the luxury of waiting to see how this resolves. Its own next decision lands September 2, two weeks before the Fed meets again, which means Governor Tiff Macklem will set Canadian policy this cycle without yet knowing what Washington does.
The Mechanism Behind the Whipsaw
The July hike probability sat at 18% on July 2. It climbed to 34.2% by July 8 and 43.3% by July 9, as President Trump's threat to reinstate a maritime blockade on Iran sent oil prices sharply higher and Fed Governor Christopher Waller warned publicly against repeating the delayed-hike mistakes of 2021 and 2022. By July 13, CME FedWatch put the odds at 46.5%, their peak for the cycle.
The retreat that followed was not a retreat in the oil story. WTI has continued climbing since, closing at $86.95 on Wednesday on the eleventh consecutive night of strikes on Iran. What changed was the data the Fed will actually see before Wednesday's meeting: June's CPI and PPI prints, released in the days after the July 13 peak, came in soft enough that traders concluded the Fed would need a fuller run of evidence before acting. The probability of a hike at the September 16 meeting climbed to 73% over the same stretch, up from 26% five weeks earlier. The risk did not leave the system. It moved to the next meeting.
Why This Still Lands on Macklem's Desk
The Fed's target range has sat at 3.50% to 3.75% since mid-June, more than 125 basis points above the Bank of Canada's 2.25% overnight rate. Roughly half of Fed policymakers already project at least one hike before year end, according to the committee's own June projections. If the Fed moves in September while the BoC stays on hold, that gap widens further.
Fed hike odds for the July 29 meeting spiked and faded within three weeks, and the shape of that move matters more than any single reading on its own.
Readings are drawn from separate reported snapshots rather than a continuous feed, so the path between points is illustrative of direction and magnitude, not a tick-by-tick record. Source: CME FedWatch via CNBC, Chase.
A wider rate gap tends to pressure the Canadian dollar, which traded at 71.01 cents US on Wednesday. A weaker loonie raises the domestic cost of oil priced in US dollars, the same commodity already driving the inflation risk both central banks are watching. The Bank of Canada held at 2.25% on July 15 for a sixth straight meeting, and Macklem said explicitly that a series of rate hikes remains on the table if elevated oil prices harden into persistent inflation rather than fade as a temporary spike.
The BoC's September 2 decision now carries a sequencing problem the July FOMC meeting does not resolve. Macklem will have June and July inflation data, the same oil price the Fed is watching, and no confirmation yet of what the Fed does two weeks later. The Fed's odds may have faded for this week. The mechanism that pushed them up in the first place is still running.