Fed Hawks Divided Ahead of Key Rate Hike Decision

Societe Generale's Jan Groen highlights a divided Federal Reserve, with a larger 'keep-on-hold' camp waiting for core PCE inflation data in the second half of 2026 before backing rate hikes.

Groen expects the Fed to keep the Fed funds rate unchanged this year but sees a sizeable risk of rate increases starting from the December FOMC meeting, contingent on core PCE outcomes.

The minutes of the July FOMC meeting painted a similar message of divided hawkishness as in the June meeting minutes. The FOMC remains divided into two camps with varying degrees of hawkishness, with the larger one content to stay on hold until core PCE inflation data over the second half of the year has convinced them that the time for rate hikes has come.

Groen emphasizes that when it comes to the outlook for monetary policy beyond the July meeting, 'it is the data that will determine whether we get a majority that support rate hikes this year.' He notes that some participants assessed that policy tightening would likely be necessary if inflation did not decline and others commented that financial conditions might not currently be sufficiently restrictive to facilitate a return of inflation to 2 percent.