Fed Eyes Steady Rates, But Hike Odds Remain Elevated

The Federal Reserve is widely expected to keep interest rates steady at 3.50%, 3.75% for its fifth consecutive meeting in July 2026, but markets are still assigning a nearly 30% probability to a rate hike.

Policymakers face heightened uncertainty due to renewed tensions between the US and Iran and elevated oil prices, despite softer-than-expected inflation and a resilient labor market. In June, US inflation eased to 3.5%, its first decline in five months.

Investors will closely monitor the voting split within the Federal Reserve, which has highlighted growing divisions, as well as Chair Warsh's second press conference for clues about the likelihood of a rate hike in September. Markets currently price in roughly a 77% probability of an increase at that meeting.