Latest pricing from traders shows the possibility of the Federal Reserve implementing a rate hike this month has risen to nearly 50 percent. This significant shift in expectations is mainly driven by the recent rebound in oil prices and hawkish signals released by Fed officials. As geopolitical tensions escalate, the market is betting that monetary policymakers may take quicker action to curb inflationary pressure. Money market data indicates that following the U.S. announcement of a new round of military action against Iran, bets on a 25-basis-point rate hike in July increased significantly. Previously, this probability was less than 40 percent, climbing to a critical point within just one day. A Fed Governor pointed out that if core inflation continues to show widespread price pressure, policymakers need to reconsider the rate hike path.

Meanwhile, the U.S. side formally notified Congress to restart the timeline for relevant military actions and announced a naval blockade on Iranian ports, threatening to strike key nuclear facilities. Affected by this, Brent crude oil prices surged nearly 10 percent intraday at one point. Contradictory statements from both sides regarding passage status in the Strait of Hormuz further exacerbated market concerns over energy supply risks, driving an expanded decline in the bond market. U.S. Treasury yields, sensitive to policy expectations, rose accordingly. The two-year Treasury yield hit a multi-year high, while five-year and benchmark ten-year yields also touched recent highs. The rise in Treasury yields occurred on the eve of the Consumer Price Index and Producer Price Index data releases. The market is simultaneously awaiting the Fed Chair's congressional testimony; the Chair had previously promised to weaken forward guidance on the future interest rate path.

Fed officials stated that if the upcoming core inflation data comes in higher than expected, considerations for tightening monetary policy in the short term will have to be put on the agenda. Market analysis suggests that investors are raising near-term rate hike expectations based on information released by officials, making inflation data more critical and potentially bringing greater volatility. If the data exceeds expectations, the yield curve may further exhibit bear flattening. The sharp rise in short-term rates reflects growing market concern that the Fed may need to hike rates earlier to cope with inflationary pressure from the global energy price rebound and strong U.S. economic performance. Inflation data released this week will become the focus, as these are the last important indicators before the Fed's next meeting. Economists predict that overall and core inflation in June may fall back slightly but will still remain significantly above policy targets.

Macro strategy analysis points out that the Fed has clarified the logic of future policy reactions, reducing the market premium for policy uncertainty while releasing hawkish signals. The Fed Chair will also attend congressional hearings this week for the first time in his capacity as the central bank's head. Although the market has increased bets on rate hikes, most investors still believe there will be no further tightening of monetary policy this year. Investors are focusing on the Fed meeting later this month, viewing it as a potential time window for the first rate hike, while upcoming data and speeches will push the market to re-evaluate the probability of a rate hike.