Fed Holds Back on Rate Hike Amid Inflation Frustration

Federal Reserve policymakers are growing impatient with inflation, but they may not be ready to act on it yet. The central bank is expected to keep its benchmark interest rate unchanged this week, despite Chair Kevin Warsh's comments that he has 'no tolerance' for elevated inflation.

The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index, will be released Thursday, which may influence their decision. Only 29% of Wall Street traders predict a rate hike this week, but 76% foresee one in September, according to the CME FedWatch tool.

The Iran war has added uncertainty to the Fed's inflation-fighting efforts. Energy prices surged last week on intensifying fighting, and Iranian-backed Houthi rebels from Yemen are now attacking shipping in the Red Sea, attempting to block tankers carrying Saudi Arabian oil.

Carl Weinberg, chief economist at High Frequency Economics, questioned whether the Fed should set monetary conditions based on hopes that oil prices will reverse course. Several policymakers have argued that the Fed needs to raise rates to return inflation to its 2% target.