As the globe fixates on America’s involvement in the escalating conflict between Israel and Iran, the probability of a July quarter-point rate cut by the U.S. Federal Reserve has edged up by a percentage point, reaching 15.5%.

Rate Cut Radar Lights Up After U.S. Hits Iran’s Nuclear Facilities

Just two days ago—after the latest Federal Open Market Committee (FOMC) gathering—that probability stood at 14.5%. But sentiments shifted after U.S. President Donald Trump disclosed that American B2 bombers had targeted Iran’s “nuclear enrichment capacity.”

According to CME Group’s Fedwatch tool, a platform that gauges market sentiment on potential adjustments to the federal funds target rate, expectations for a 25-basis-point cut have since ticked higher, now resting at 15.5%. The likelihood of rates holding steady now sits at 84.5%.

In other words, markets are beginning to price in the possibility that the Fed may opt to trim borrowing costs in July. The probability climbs even higher for the September FOMC meeting, with markets assigning a 57.6% chance that the Fed trims rates by a quarter point. The odds of a deeper, half-point cut stand at 12.3%, while a decision to hold steady sits at 30.1%.

Looking ahead to December, futures suggest only a 4.2% chance the federal funds rate remains at its current 425-450 basis-point range. A move to the 400-425 band carries a 22.8% likelihood, while the 375-400 range leads expectations at 41.1%. Meanwhile, on the prediction platform Polymarket, the chance of a July quarter-point cut lags at 13%, with an 87% probability priced in for no adjustment.

As geopolitical tensions intensify and rate-cut probabilities shift across timelines, market participants appear increasingly attuned to how global conflict could influence domestic monetary policy. With sentiment recalibrating in real time, traders are weighing not just risk-on and risk-off investments, but the broader consequences of military escalation on interest-rate trajectories in the months still to come.

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