Fed Policymakers Face 'Family Fight' Over Interest Rate Hikes Amid Inflation Fears

Federal Reserve policymakers are set to begin their two-day meeting on Tuesday, and for the first time in years, the outcome of the vote is a true mystery to investors. Fed Chairman Kevin Warsh has criticized the Fed for telegraphing its future moves too loudly, potentially giving policymakers less flexibility to respond to changing circumstances.

The 12-member rate-setting Federal Open Market Committee is divided on whether rates should go higher or lower later this year, with Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan expected to press their case for an interest rate hike. Warsh, who advocated for lower rates when he was on President Donald Trump's short list for Fed chair, now faces an alarming resurgence of inflation, which has driven mortgage rates back up to their highest level in nearly a year.

The latest round of inflation, driven by surging oil prices due to the war with Iran, has taken any notion of Fed rate cuts off the table for now. Instead, the members of the rate-setting FOMC will be debating whether, and when, to raise the Fed's benchmark interest rate.

Financial markets estimate a roughly 40% chance that the FOMC will raise interest rates by a quarter-percentage point on Wednesday and a 60% chance that rates will remain unchanged, according to CME FedWatch. Mortgage rates are set by lenders in the free market, not the Fed directly. But mortgage rates are sensitive to inflation and market expectations for future Fed policy.