Fed Holds Back on Rate Hike Despite Rising Inflation Fears

The Federal Reserve is expected to maintain its benchmark interest rate unchanged this week, despite rising inflation concerns. According to Fed watchers Joseph Egelhof and Guneet Dhingra at BNP Paribas Securities, policymakers may be reluctant to act and risk disrupting financial markets that aren't anticipating a rate increase yet.

Inflation has surpassed the 2% target set by the Fed for over five years. New Fed Chair Kevin Warsh told Congress earlier this month that he had 'no tolerance' for elevated inflation. The Commerce Department is set to release economic growth and inflation data on Thursday, which may influence policymakers' decisions.

Only 29% of Wall Street traders predict a rate hike this week, but 76% foresee a hike in September, according to the CME FedWatch tool. Egelhof and Dhingra warn that policymakers' patience with high inflation is exhausted, increasing the risk of a rate hike next month.