Fed Expected to Hold Rates Amid Persistent Inflation and Geopolitical Uncertainty
Federal Reserve officials are likely to keep the benchmark interest rate unchanged this week, despite growing impatience over inflation that has stayed above target for more than five years.
The Federal Reserve is expected to leave its benchmark interest rate unchanged at its Washington meeting on Tuesday and Wednesday, although policymakers may consider a hike at the September 15-16 session. Inflation has remained above the Fed’s 2% goal for over five years, prompting new Chair Kevin Warsh to tell Congress he has “no tolerance” for elevated price growth.
Analysts at BNP Paribas Securities said a dramatic rate increase this week is possible but unlikely, noting that officials appear reluctant to disrupt financial markets that have not priced in a hike. They added that policymakers may wait for additional data, including the Commerce Department’s upcoming report on April-June economic growth and the personal consumption expenditures price index for June.
Wall Street traders currently see a 29% chance of a rate rise this week, while 76% anticipate an increase in September, up from 59% a month earlier, according to the CME FedWatch tool.
Geopolitical tensions in the Middle East are adding to the Fed’s dilemma. Oil prices briefly rose above $100 a barrel amid fighting involving Iran and attacks on shipping in the Red Sea, though they have since moderated. High-frequency economist Carl Weinberg warned that the Fed must decide whether to base policy on hopes of lower oil prices or act to prevent inflation from exceeding its target.
Core inflation, which excludes food and energy, eased in June partly because rent growth slowed and gasoline prices fell temporarily. Nonetheless, several Fed officials, including board member Christopher Waller, have argued that further rate hikes may be necessary to bring inflation back to the 2% target.