Fed Hesitates on Rate Hike Amid Inflation Frustration
The Federal Reserve is expected to keep its benchmark interest rate unchanged at this week's meeting in Washington. Despite rising frustration among policymakers about high inflation, which has been above the Fed's 2% target for over five years, they may not be ready to act yet.
New Fed Chair Kevin Warsh has stated his 'no tolerance' for elevated inflation, but a 'shock rate hike' is considered unlikely at this time. Economists Joseph Egelhof and Guneet Dhingra at BNP Paribas Securities say policymakers may hold off on raising rates due to concerns about disrupting financial markets.
The uncertainty surrounding the Iran war has added to inflation pressure, causing oil prices to surge. The Fed's decision-making is further complicated by the fact that only 29% of Wall Street traders predict a rate hike this week, but 76% foresee one in September.
Some policymakers have been arguing that the Fed will need to raise rates to return inflation to its target level, with influential member Christopher Waller stating that 'Sternly staring at inflation until it melts before our withering gaze is not an option.'