On the eve of the Federal Reserve's policy decision, Wall Street is betting on a "hawkish pause", with a nearly 30% chance of an unexpected interest rate hike.

The Federal Reserve will announce its interest rate decision on July 29 (Eastern Time; early morning of July 30 Beijing Time), and the market is bracing for one of the most unpredictable FOMC meetings in recent years. CME’s FedWatch tool shows traders currently assign a roughly 71% probability to the Fed holding rates steady in the 3.50%-3.75% range, while pricing in a roughly 29% chance of an unexpected 25 basis point rate hike. This round of uncertainty stems mainly from oil prices and inflation. Recurring tensions in the Middle East have pushed up energy prices, stoking market fears of resurging inflationary pressure. Meanwhile, recent inflation data has shown signs of cooling, making it far harder to gauge whether the Fed needs to act immediately. Wall Street broadly believes that even if the Fed holds steady this week, Chair Kevin Warsh may deliver a hawkish signal. Investors will closely watch three key points: whether the policy statement amplifies inflation risk warnings, whether there are dissenting votes in support of rate hikes, and whether Warsh leaves room for further increases later this year. For the market, the real risk lies in an upward revision of the interest rate path. If the Fed hints at more possible tightening, U.S. Treasury yields and mortgage rates may continue to climb, weighing on valuations of growth stocks and other interest-rate-sensitive assets. Strategists note that U.S. equities could see sharp volatility on decision day, as investors wait for Warsh to offer clearer policy direction.