Fed Holds Fire on Rates Amid Inflation Fears

The Federal Reserve is set to meet on Wednesday amidst uncertainty over whether policymakers will raise interest rates to combat inflation. Despite high inflation, economists expect the Fed to hold rates steady for now, but see a significant risk of a hike in September.

The monetary policy decision comes as oil prices have soared due to renewed tensions in the Middle East, reigniting concerns that inflation could continue to rise in the world's largest economy. President Donald Trump's tariffs on foreign goods and investment in data centres are also contributing to inflationary pressure.

A tamer-than-expected June inflation report offered officials breathing room to keep rates stable, with headline inflation coming in at 3.5% year-on-year, down from 4.2% in May, and core inflation at 2.6%, following a 2.9% reading in May.

New Fed Chair Kevin Warsh has stated that he has 'no tolerance' for elevated inflation, but policymakers may want to see more economic data before making any decisions. The Commerce Department will deliver the first look at economic growth between April and June on Thursday, and publish the Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index, for June.