Meanwhile, German bond yields have hit a 15-year high on inflation worries, and long-term rates have risen in Japan as well. "If inflation in the next two months stays high and the Fed doesn't hike in September, the bond vigilantes will go nuts." For now, traders see a roughly 70% chance that the Fed will tighten at its next meeting in September. The conflict in the Middle East has lifted oil prices, sparking inflation concerns and complicating officials' ability to chart policy. But as the Iran war drags on, investors are fretting that higher inflation expectations may become entrenched.