Will they or won’t they?
That’s the question being asked about whether Fed policy makers will hold steady this week on interest rates or will they vote to hike the rates because of higher energy prices and fears over the war with Iran.
CNBC reported that market watchers believe the Fed is expected to hold interest rates unchanged at its meeting this week — as higher energy prices and renewed tensions with Iran have complicated the picture for Fed Chairman Kevin Warsh, despite cooler inflation data.
Concerns Could Cause Hike
Reuters, however, reported that a growing number of major brokerages believe there is a real risk of the Fed serving up a rate hike this week because of those concerns. It said that most brokerages, including BofA Global Research and Deutsche Bank, still expect the Fed to keep rates unchanged, but limited guidance from Warsh, combined with the re-escalation of conflict in the Gulf and rising oil prices, has turned the July rate decision into a close call, Reuters said.
Trump told Axios on Monday that he decided to pause U.S. strikes on Iran to give negotiations another chance, but he stressed that he could order a return to expanded military operations should diplomacy fail.
CNBC noted that while Warsh took over a Fed that has seen inflation exceed its 2% target since 2021, the consumer price index — a broad measure of inflation — posted an unexpected decline last month. That brought the annual inflation rate down to 3.5% in June.
In the ensuring weeks, however, oil prices jumped again amid the escalating conflict in the Middle East.
Traders Expect September Rise
CNBC noted that traders scaled back their expectations for an interest rate hike when the Fed meets this week, according to the CME Group’s FedWatch gauge. Market pricing indicates the Fed is more likely to consider a rate move in September, CNBC repored.
Price stability remains a headwind for the new Chair, despite President Donald Trump’s push to bring the fed funds rate down, according to Brett House, an Economics Professor at Columbia Business School. “It sets up a potential conflict between Trump and the Fed, where his desire for lower interest rates is unlikely to be realized anytime soon,” he said.
