Natixis Predicts One-and-Done Rate Hike Under Warsh as Inflation Concerns Grow

Natixis economists Christopher Hodge and Selin Aker predict that the Federal Reserve will raise interest rates at its upcoming FOMC meeting. This would be the first rate increase under Fed Chair Kevin Warsh, who has expressed dissatisfaction with the pace of disinflation.

The hike is expected to lift the policy rate to 4.0%, and the economists anticipate minimal dissents from regional presidents Logan, Hammock, and Kashkari, who favored a larger 50 basis point increase in July.

Hodge and Aker note that core CPI coming in above expectations has cemented expectations for a rate hike. They expect policymakers to be less tolerant of one-off factors now and that above-target inflation remains the Fed's problem even when supported by factors outside its control.

The economists also expect few material changes to the Summary of Economic Projections, with the end-of-2026 policy projection rising to 4.1%, suggesting another hike by the end of this year.