Fed Rate Hike Surprise Possible in July

The Federal Reserve is expected to raise interest rates in September, but one chief economist believes a surprise hike could be coming sooner.

Neil Dutta of Pantheon Macroeconomics thinks a rate increase might occur at the Fed's next meeting on July 28. He notes that Fed Chair Kevin Warsh has emphasized the central bank's commitment to fighting inflation and that conditions supporting higher inflation remain in place, including a stable labor market, high oil prices, and tariffs.

Dutta points out that moving now would give the Fed control over future policy decisions rather than being backed into a corner later. He also notes that other economists, like Ed Yardeni of Yardeni Research, have made similar predictions, with Yardeni citing rising 2-year Treasury yields as evidence.

The current fed funds rate sits in the 3.5%-3.75% range, and investors are pricing in a 66% chance that the Fed stays put in July but a 57% chance of a hike in September. However, Dutta believes that a surprise rate hike could be coming sooner than expected.