A rate hike, not a cut, is now on the table for the Federal Reserve's meeting next week. CME Group's FedWatch tool put the probability of a July increase at about 38%, up from less than 12% a week earlier, according to CBS News. At the start of the year, many economists had expected at least one cut in 2026.
The shift tracks a run-up in oil. Brent crude topped $100 a barrel on Thursday, and the average U.S. gasoline price reached $4 a gallon this week, the highest in more than a month, CNBC reported using AAA data. The same tool priced a roughly 82% chance of a September hike, up from below 53% a week ago.
Economists polled by FactSet still expect the Fed to hold its benchmark at 3.5% to 3.75% on July 29, which would be the fifth straight meeting without a change. Fed Chair Kevin Warsh has pledged to return inflation to the 2% target while sharing less forward guidance, and at the June meeting nearly half of policymakers said they would support a hike later this year.
Several officials have made the inflation case in recent speeches, Forbes noted:
- Governor Lisa Cook, on July 15, said the price index the Fed targets rose 3.7% in the 12 months through June, 1.7 percentage points above the 2% goal.
- Vice Chair Philip Jefferson, on July 16, said it could be appropriate to reconsider the current policy stance if inflation doesn't cool soon.
- Governor Christopher Waller, on July 13, said he is concerned that current policy would make it hard to push inflation back toward 2%.
Gregory Daco, chief economist for EY-Parthenon, said in a July 22 email that his base case is the Fed staying on hold through year-end, "but it's a 60-40 call." Forbes wrote that the most likely path in fixed-income markets is two hikes this year, possibly starting in September or October.
