Fed Rate-Hike Showdown Looms as Inflation Risks Spark Market Jitters
The Federal Reserve's July 28-29 policymaking meeting on interest rates is now expected to be a rate-hike showdown, a far cry from the anticipated 'snooze fest' just weeks ago.
Economists and traders had forecasted a hold on the benchmark Federal Funds Rate due to a stabilizing labor market and a dip in the June Consumer Price Index. However, with recent energy price surges and concerns over the Iran-US peace accord breakdown, the outlook has shifted.
Fed Governor Christopher Waller warned of elevated core inflation, while former Fed economist William English stated that 'I can make a good case for either raising rates or not' due to the uncertainty surrounding inflation risks.
The CME Group FedWatch Tool now shows a 30-40% probability of interest-rate hikes by year-end, up from near 90% odds of steady rates just weeks prior. The tool also indicates a nearly 79% cumulative chance of at least one 25 basis-point rate hike happening by or during the September FOMC meeting.