Fed Expected to Keep Interest Rates Unchanged Despite Global Tensions

The Federal Reserve is expected to keep its key interest rate unchanged next month and through year-end, according to most economists in a Reuters poll. This view has been held by the economists for several months now.

The market pricing for a September quarter point hike has flipped towards a near-70% chance of a hold after recent news of unexpected job losses in July. Lower-than-expected consumer price inflation, alongside weaker retail sales, has reinforced the view that not all is well with the world's largest economy.

However, markets are still pricing in one rate increase by end-December due to the ongoing U.S.-Iran conflict and oil prices being about 25% above pre-war levels. Fed Chair Kevin Warsh reiterated the Fed's commitment to returning inflation to its 2% target after more than five years above it, but provided no plan of action.

A measure of dissent on the Federal Open Market Committee is likely to continue, with several members signaling that tighter policy could still be needed if inflation remains elevated. A 90% majority of economists in the poll expected the Fed to leave rates unchanged at 3.50%-3.75% at its September 15-16 meeting.