Fed Holds Fire on Rate Hike Amid Iran War Uncertainty
Despite growing frustration over high inflation rates, the Federal Reserve is expected to keep its benchmark interest rate unchanged at its upcoming meeting. The Fed's policymakers have been losing patience with inflation, which has remained above their 2% target for more than five years. New Fed Chair Kevin Warsh has stated that he has 'no tolerance' for elevated inflation.
The uncertainty surrounding the Iran war is casting doubt on the Fed's decision-making process. The price of oil briefly surged past $100 a barrel last week, and although it has since settled down, energy prices remain volatile. This situation puts the Fed's inflation fighters in a bind, as they must weigh the risk of disrupting financial markets against the need to control inflation.
Some analysts believe that the Fed may 'release the kraken' with a 'shock rate hike', but others think policymakers will hold off on raising rates this week. Instead, they may wait for more economic data, including the first look at April-June economic growth and the personal consumption expenditures (PCE) price index for June.
Only 29% of Wall Street traders predict a rate hike this week, but 76% foresee one in September. A month ago, only 59% of traders expected a September rate increase, according to the CME FedWatch tool.