A year that started with talk of rate cuts has flipped. Heading into the Federal Reserve's July 28-29 meeting, the CME Group's FedWatch tool now shows a 38% chance the Fed hikes its benchmark rate on July 29, up from 12% a week earlier. Most economists polled by FactSet still expect a hold, which would keep the target range at 3.5% to 3.75% for a fifth straight meeting.
The repricing tracks a jump in oil prices, which topped $100 a barrel on Thursday. The Trade section covers the tariff piece of the inflation story; here the pressure is energy. Nigel Green, CEO of deVere Group, said in a July 23 email that "the Fed will find holding steady a harder case to make than it looked even a few weeks ago."
Fed officials have been blunt about the risk. Governor Lisa Cook said on July 15 that the price index the Fed targets rose 3.7% in the 12 months through June, 1.7 percentage points above the 2% goal, and that high inflation concerns her more than the jobs side of the mandate. Two colleagues echoed the warning:
- Vice Chair Philip Jefferson said on July 16 it "could be appropriate to reconsider our current policy stance" if inflation doesn't cool soon.
- Governor Christopher Waller said on July 13 he is concerned that if the upward trend in core inflation continues, current policy won't push it back toward 2%.
Chair Kevin Warsh, who has pledged to return inflation to target, declined to submit individual economic projections at the June meeting, though nearly half of policymakers said they would support a hike later this year.
Gregory Daco, chief economist for EY-Parthenon, said in a July 22 email that a July hike remains highly unlikely and that September will be the first meaningful test of whether inflation is durable. His base case is a hold through year-end, "but it's a 60-40 call." HNGN reported that continued oil volatility tied to the U.S.-Iran conflict is likely to keep moving hike odds before the decision.
