Fed Divided on Rate Hike Amid Inflation Concerns

The Federal Reserve's decision to hold interest rates steady for a fifth consecutive time has left economists divided on whether a rate hike will occur by the end of this year.

Fed Chair Kevin Warsh struck a combative tone about inflation, but opted against deploying its most powerful weapon: an interest rate hike. Three members of the Fed's policymaking board voted in favor of a rate hike, marking the largest number of dissenters since 2016.

Some analysts expect a rate increase as soon as the Fed's next meeting in September, citing risks posed by price increases driven by the global oil shortage. Others cast doubt on whether the Fed will raise rates at all over the remainder of this year, noting Warsh's willingness to let the market push borrowing costs higher without a nudge from the central bank.

A 63% chance of a quarter-point rate hike at the next meeting in September and an 83% chance by the end of the year are reflected in investor sentiment. However, others question whether the Fed can address inflation driven by supply shortages, such as the current oil shock, with higher interest rates.

The market's ability to set borrowing costs has worked to the Fed's advantage, some economists say. The 30-year Treasury yield hit its highest level since 2007 on Wednesday after the Fed issued its rate decision. The average interest rate on a 30-year fixed mortgage stands at 6.66%, its highest level in a year.