Topline
The Federal Reserve is widely expected to leave interest rates untouched on Wednesday, though Kevin Warsh’s second meeting as chair could feature dissents as policymakers remain split over how to steer policy while inflation worries persist.
At its last meeting, the central bank showed clear signs of disagreement over where interest rates should go next.
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Key Facts
Markets are leaning toward another pause: Traders see a little more than a 64% chance the Federal Open Market Committee keeps rates in the 3.5% to 3.75% range, according to CME Group’s FedWatch tool, in line with consensus analyst expectations cited by FactSet.
Prediction markets are even more confident that rates will stay put. Polymarket assigned a 76% probability to no change, while Kalshi put the odds of the Fed holding steady at 74%.
Minutes from the FOMC’s June meeting showed that a “few” officials believed there was an argument for raising rates, though they ultimately backed the decision to hold them steady. Others viewed the Fed’s current stance as too restrictive, indicating support for a rate cut.
Officials also appeared divided over the likely path of rates through year-end. “Many” meeting participants said rates would be “within or slightly below” the current range by then, while “many other” participants expected rates to be higher.
Dallas Fed President Lorie Logan said earlier this month that rates should be “modestly” higher. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Fed Governor Christopher Waller have also signaled support for tighter monetary policy, pointing to a preference for raising rates.
what has kevin warsh said about interest 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.
will the federal reserve cut interest rates this year?
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.
key background
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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