Despite frustration over high prices, Federal Reserve is expected to keep rates unchanged -- for now
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- Federal Reserve policymakers are expected to hold the benchmark interest rate steady at their Tuesday-Wednesday meeting, with only 29% of Wall Street traders forecasting a hike this week.
- Kevin Warsh, in his second meeting as Fed Chair, told Congress he had "no tolerance" for elevated inflation, and analysts at BNP Paribas (Joseph Egelhof and Guneet Dhingra) say policymakers' patience is "broadly exhausted" with a significant risk of a September rate hike.
- Expectations for a September hike jumped from 59% to 76% in one month, according to the CME FedWatch tool, reflecting mounting concern that the Iran war's oil-price shock and Trump-era tariffs will keep inflation stuck above the 2% target.
- Iran shut down the Strait of Hormuz after U.S. and Israeli attacks on Feb. 28, causing what the source calls the greatest disruption in oil supplies in history; oil briefly topped $100 a barrel last week, and Iranian-backed Houthi rebels are now attacking Saudi oil tankers in the Bab el-Mandeb Strait.
- Carl Weinberg of High Frequency Economics challenged the Fed to decide whether to set policy on "a hope that oil prices will reverse" or "do its job of minimizing the probabilities that inflation will exceed target."
- Christopher Waller, an influential Fed governor, declared that "sternly staring at inflation until it melts before our withering gaze is not an option," signaling growing internal pressure to act.
- Other inflation pressures include Donald Trump's tariffs on foreign goods and a surge in AI data-center investment driving up costs for computer chips, equipment, and electricity, though core inflation cooled slightly in June on slower apartment-rent growth.
Why it matters: With oil above $100 a barrel, Trump tariffs adding to costs, and inflation stuck above 2% for over five years, the Fed is converging on a September rate hike that 76% of traders now expect — up from 59% a month ago. Consumers and borrowers would face higher rates on mortgages, credit cards, and business loans if the Fed acts, while Chair Warsh's "no tolerance" stance signals the era of patience is ending.
