Fed's Rate Decision Faces High Bar Despite Rising Hike Bets

The Federal Reserve's decision on interest rates is highly anticipated this week, and many are predicting a hike. However, some experts believe that the bar for a rate increase may be higher than expected, given softer-than-expected inflation data and improved relations between the US and Iran.

According to James Bullard, former head of the St. Louis Fed, the committee is likely to decide whether to commit to a sequence of rate increases or not. He doesn't think they're ready to do that at this meeting.

Consumer prices rose 3.5% in June from a year earlier, still high but down from 4.2% in May as a US-Iran cease-fire lowered fuel prices. Trend inflation also eased, with the core Consumer Price Index measure dropping to 2.6% from 2.9%. The labor market has remained on solid ground, with hourly wage growth at 3.5% on a year-over-year basis.

Despite this, underlying reasons prompting half of the Fed policymakers to pencil in a higher policy rate by the end of this year remain intact. Inflation has been running above the Fed's 2% goal for more than five years, and it reaccelerated in the first half of this year.