Fed Rates Expected to Remain Unchanged Despite Rising Oil Prices

The Federal Reserve's two-day policy meeting concluded on Wednesday, and economists are largely expecting interest rates to remain unchanged. This is despite rising oil prices, tariffs, and mixed economic data, which have complicated the outlook. ING Chief International Economist James Knightley stated that the Fed will likely leave rates steady after the June Consumer Price Index came in below expectations and labor market data softened.

Gregory Daco, chief economist at EY-Parthenon, also expects the Fed to be on hold for the rest of the year. He cited disinflationary trends, including a decrease in wage growth to 3.5%, which he believes will carry through to the end of the year.

However, several firms have described the July decision as a closer call than previously anticipated. BofA's economists expect three 25-basis-point rate hikes this year and stated that the surge in oil prices has made the July decision a 'close call'. The firm believes that not hiking could challenge the Fed's credibility on inflation, while raising rates would go against Chair Kevin Warsh's framework of looking through supply shocks.