RESOLVING THE LEDGER
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Topline The Federal Reserve is favored on Wednesday to keep interest rates unchanged, though some dissent is expected at Kevin Warsh’s second meeting as chair, as officials seem divided over how to approach policy amid persistent inflation concerns.
Traders have priced in just over 64% odds of the Federal Open Market Committee holding interest rates between 3.5% and 3.75%, CME Group’s FedWatch tool indicates, matching consensus analyst projections, according to FactSet.
Betting markets similarly favor no change in interest rates: Polymarket placed 76% odds of interest rates being held, while Kalshi projected 74% odds of the Fed keeping the rate unchanged.
During the FOMC’s June meeting, a “few” central bank officials said there was a case for hiking interest rates, but later supported a decision to leave rates unchanged, and other officials viewed the Federal Reserve’s rate policy as too restrictive, suggesting support for a cut.
There appeared to be division over how the central bank’s policy rate shifted through the year, as “many” participants in the FOMC meeting said interest rates would be “within or slightly below” their current range by the end of the year, even as “many other” participants assessed that interest rates would be higher.
Dallas Fed President Lorie Logan earlier this month said she believed interest rates should be “modestly” higher, while Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Fed Governor Christopher Waller have each signaled support for tighter monetary policy, suggesting a preference for raising rates.
Warsh, who has been noncommittal on the near-term path of interest rates, said central bank officials have “no tolerance for persistently elevated inflation.” He said the Fed has a “resolute commitment to restoring price stability” and said getting inflation under control is its foremost objective.
Likely not. In the FOMC’s June meeting, officials expected no changes to interest rates until a cut in Q2 2027. Bank of America analysts wrote in a note earlier this week that they expect three quarter-point rate hikes this year, potentially raising interest rates to between 4.25% and 4.5%, citing rising oil prices that have pushed inflation to multiyear highs.
Federal Reserve officials have cited rising inflation amid the Iran war as a reason to keep interest rates unchanged in recent months. The central bank’s preferred inflation reading, core consumption expenditures index data, rose at its fastest rate in nearly three years in May, matching similarly high consumption price index data. Inflation briefly cooled in June during a brief peace deal between Iran and the U.S. that resulted in lower oil prices and the largest month-to-month decline in consumer prices since April 2020. Warsh, in prepared remarks to Congress earlier this year, pledged the central bank would “get monetary policy right” and said, “the inflation surge of the last five years will be a thing of the past.”
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